United becomes first airline to raise $1 billion in cash by selling new stocks

United-Continental Holdings Inc., has became the first airline to raise US$1 billion in capital by selling new shares, stepping up efforts to increase cash flow to help weather the collapse in demand for air travel.

A United Boeing 777-300ER. Photo by Cole McAndrew | AeroNewsX

A representative from United Airlines said in a statement on Tuesday, April 21st, that the company sold 39,250,000 shares priced at $26.50 USD apiece, with an option for underwriters (a bank or other financial institution that pledges to buy all the unsold shares in an issue of new shares) to buy an extra 10%. Banks Morgan Stanley and Barclays Plc are the underwriters for United’s share offering.

The price for the stock was at the high end of what the stock was marketed at. However, it is now down about 5% below its latest close.

This share sale, which was the first done by a major U.S. airline during the COVID-19 pandemic, is seemingly underscoring efforts by other air carriers to help source for additional funds even after the U.S. government had stepped in, pledging US$50 billion in grants and loans for payroll assistance and essentially worker furlough insurance prevention until September 2020.

Passenger totals have fallen about 95% in the U.S. (according to the data from the Transportation Security Administration, or TSA) as the disease and current government travel/quarantine restrictions keep many people at home.

This push for liquidity highlights much of the recent trends of uncertainty over how fears of the virus will prompt travelers to avoid flying, further worsening the industry’s already deep financial troubles.

United’s offering may open the doors to similar transactions by other carriers. A survey conducted by the International Air Transport Association (IATA) found that 40% of recent air travelers anticipated waiting at least six months before taking a flight, even after the virus is considered contained and global leaders have confirmed that it would be safe to travel.

We have seen new trends emerging in recent weeks that would suggest the lasting impact of COVID-19 altering of the aviation industry quite significantly. Ideas as radical as eliminating the middle seat on aircraft, or the implementation of new “sneeze dividers” between seats to prevent the spread of disease have been put forward.

United’s stock value fell 1.7% after the close of regular trading in New York. The stock had plunged 68% this year through the close of trading on the 21st of April, which was the sharpest decline on a Standard & Poor’s index of the five biggest U.S. air carriers.

Even so, the company has still raised billions of dollars in cash flow this year, including $5 billion from federal grants and loans, to help steady the financial turbulence. According to executives at the airline, United could tap into about $20 billion in assets as collateral for additional debt financing.

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