What's going on?

Ladies and gentlemen, the captain has switched on the dollar sign: on Sunday, American Airlines announced plans to bring on board $3.5 billion of additional funding.

What does this mean?

American intends to sell $750 million worth of new shares and the same amount of �convertible bonds�, as well as issuing another $1.5 billion of regular bonds and taking out a $500 million loan. The back of the couch has already been thoroughly searched.


Convertible bonds have the potential to become shares in the company that issues them. As well as regular interest payments, they�ll offer investors a potentially attractive opportunity to own American�s stock if it performs well: conversion is typically dependent on the stock price reaching a set higher level. In return, American will likely get away with paying a lower interest rate than it would on traditional bonds � and, since there�s no guarantee the bonds will convert, will perhaps dilute the value of its stock by less than if it sold even more new shares. Nevertheless, American�s share price dipped 7% on Monday.

Why should I care?

For markets: Taxiing to the runway.

The fresh fuel injection should help American Airlines survive the protracted downturn in air travel: it�s expecting second-quarter revenue to be 90% lower than this time last year. And it�s not alone: Delta Air Lines said last week that it�s currently running at 15% capacity and doesn�t expect to stop losing money until next spring. Fellow carrier United�s reportedly planning to sell $5 billion of debt this week � and coronavirus-hit companies from Hilton to PepsiCo are hoarding cash like it�s going out of style.

Zooming out: Thrust versus drag.

Even with extensive state sympathy, airlines don�t have it easy: across the Atlantic, the German government last month agreed a $10 billion rescue package with flag carrier Lufthansa in return for a 20% stake � but the airline�s current largest investor is threatening to vote it down. Lufthansa�s stock fell 3% on Monday as the risk of missing out on much-needed cash loomed large.