Southwest Airlines has reportedly raised about US$4 billion USD by selling shares and convertible notes, stepping up a national push for liquidity as the coronavirus pandemic erases demand for flights.
The carrier had sold 70 million shares at US$28.50 apiece and US$2 billion of convertible notes (which are investment bonds that would return investors equity in the company) due in 2025, according to a statement. Southwest increased both the stock and bond portion of the sale from what it had previously targeted.
Southwest is following the stock fire sale that United Airlines did in the weeks previous in offering equity amid the biggest and most devastating crisis in the airline industry’s history, as carriers rush to raise funds even after receiving billions of dollars in government aid. Southwest is also cutting the number of 737 MAX jets it will take through December 2021 by more than 50%, and said the travel outlook demand remains bleak.
Southwest Airlines has already raised over US$5.2 billion in debt since the start of the year. CEO Gary Kelly said the company would try to raise more money even after the new offerings.
“This is a doozy,” he said in an interview on CNBC, referring to the travel collapse. “As a world, we just weren’t prepared for this pandemic. We need to be better prepared next time around and hopefully it won’t be for another century.”
The stock sold plus a 10.5 million share over-allotment option, to represent about 16% of Southwest’s current outstanding stock.
“The company is in a strong liquidity position and is in good shape to weather the near-term demand decline,” Helane Becker, a Cowen & Co. analyst, said in a note to clients. The proceeds from the equity and notes sales will “further bolster” that stance.
Southwest is also pursuing its options to cut current costs where possible. Deliveries of the 737 MAX jets from Boeing will total no more than 48 through the end of next year. The Dallas-based airline had been scheduled to receive 123 of the jets from Boeing and aircraft lessors through the end of 2021, CFO Tammy Romo said.
Under the reworked delivery schedule, the company will this year take fewer than the 27 jets it had been expecting. Also, the carrier will remove the MAX from its schedule until late October of this year as Boeing works to end an ongoing worldwide grounding that began in March 2019 after two deadly crashes.
With far fewer air travelers on planes in the recent past, Southwest’s operating revenue will fall as much as 95% in April and May, with revenue trends being too hard to predict after that, in an official statement from a representative on behalf of the airline.
The airline also intends to apply for a US$2.8 billion secured loan from the U.S. Treasury Department but hasn’t decided whether it will ultimately take the funds. Earlier this month, Southwest had received more than US$3.2 billion, some of it on a grant basis, and some of it as a loan - in what was payroll support from the Treasury of the United States.
If stay-at-home restrictions start to be lifted (which many states are beginning to do), some improvement in travel demand may begin in June, Gary Kelly said.
“A lot of people have made summer vacation travel plans and I think some people are anxious to begin to get back to their lives,” he said. “Seeing what demand is in July and August is really critical.”
The first quarter of 2020 was the first reporting period that Southwest had reported a net loss in profit since 2009.