Southwest Airlines says it won’t take government loan against coronavirus

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Southwest Airlines (NYSE: LUV) said on Wednesday it would not participate in a loan program run by the U.S. Treasury designed to support the airline industry, reaffirming its place among the healthiest companies in the airline industry.

The southwest, like all airlines, has been hit hard by the coronavirus pandemic, which has evaporated travel demand and left airlines bleeding money. Earlier this year, the CARES Act provided up to $ 50 billion to support the industry, including $ 25 billion in payroll support and $ 25 billion in loans.

Image source: Southwest Airlines.

The airline agreed to payroll support and signed a non-binding letter of intent with the Treasury Department in July for a secured loan of around $ 2.8 billion. But the airline has also made steady progress in cutting costs and raising private capital, and has around two years of cash at current burn rates.

In a regulatory filing Wednesday, Southwest said that “because of the significant steps the company has taken to strengthen its liquidity and its belief that it can secure additional financing on favorable terms, if required, the company has since decided not to participate in the guaranteed loan program. ”

During a phone call with investors in July, CEO Gary Kelly called the terms of the loan “quite onerous” (including forcing the airline to issue stock warrants), telegraphing that the airline would only accept money if needed.

It’s unclear if Southwest will be the only airline to deny loans, but others including American Airlines Group said they would participate in the program. Southwest is widely regarded as one of the strongest companies in the industry, and equity and debt markets are expected to remain open there even as conditions remain challenging.

In its latest update, the airline said it “continues to experience significant negative impacts on passenger demand and bookings” as a result of the pandemic, although it has seen “modest improvement” so far. ‘now in August.

Southwest expects August operating revenues to decline 70% to 75% year over year and overall third quarter capacity to decline 30% to 35%. That’s down from Southwest’s previous forecast of a 20% to 30% drop in capacity in the quarter.



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