Delta Air Lines Inc. last Wednesday sold $3.5 billion of bonds, the largest sale ever by an airline.
Photo: Charlie Riedel/Associated PressThe aviation industry is selling debt at a record pace, reflecting investors’ continuing willingness to buy debt from companies hard-hit by the pandemic—at the right price.
Airplane companies sold a combined $32 billion of debt in a series of blockbuster deals last week. Boeing Co. raised $25 billion of bonds Thursday, the largest ever bond deal outside of an acquisition and a record for the aviation industry, according to Refinitiv. One day before, Delta Air Lines Inc. sold $3.5 billion of bonds—the largest sale ever by an airline—along with a $1.5 billion loan, according to JPMorgan Chase & Co.
As the pandemic’s fallout rattled markets in recent weeks, investors avoided debt from companies they thought were going to struggle as Americans stayed at home and spent less. Investors’ enthusiasm for debt from airlines and aircraft manufacturers bodes well for other companies affected by the coronavirus looking to raise cash, said Kevin Foley, head of debt capital markets at JPMorgan.
“The investor base is not fixated on the status quo, it’s focused on where these companies will be when the virus is managed,” said Mr. Foley, whose team helped lead the debt sales on behalf of Boeing and Delta.
More than 200 firms placed $10 billion in orders for Delta’s sale of bonds and loans, according to sources familiar with the deal. But that money came at a higher cost than in recent history, with an interest rate of more than double that of the company’s existing bonds. On top of that, the company pledged as collateral key landing slots at John F. Kennedy and LaGuardia airports in New York, Heathrow in London, and routes in Europe and Latin America.
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Delta’s new bonds due in 2025 closed Monday at 100.938 cents on the dollar, according to MarketAxess, down from 102 cents at Friday’s close.
The sales come at a hard time for the aviation industry. Since the beginning of March, the number of travelers screened at U.S. airports has plummeted by 96% compared with last year, according to Transportation Security Administration data compiled by APM Research Lab. As a result, airlines cut their commercial routes by 60% by late April, says travel data provider OAG.
In its latest earnings call, Delta said it would be cutting its flight capacity by 85% during this quarter versus the same period last year, leaving more than 650 aircraft parked. That Delta was able to attract such demand despite continuing challenges from the coronavirus highlights the market’s openness toward companies that may wrestle with the pandemic’s effects for some months, said Mr. Foley.
“In Delta’s case, it’s still unclear when we’re going to get back to normalized travel. What is travel going to look like in a world where you have social distancing in effect? Yet the market is saying this is inherently a good business and willing to price that risk,” said Mr. Foley.
Airline operators also have looked to raise cash in the stock market. After United Airlines Holdings Inc. announced a sale of 39.25 million new shares two weeks ago, its stock fell by 3% before recovering days later. The company had a total of $7.2 billion in cash at the start of May, said Chief Financial Officer Gerald Laderman during an earnings call last week.
Southwest Airlines Co. has found success navigating both equity and credit raises. After raising more than $6 billion last week, Southwest is now in the strongest financial position out of any U.S. airline, with around $16.8 billion in cash. The company also is eligible to collect an additional $2.8 billion loan from the U.S. Treasury.
Some U.S. carriers have opted to avoid tapping the credit and equity markets altogether for new cash. United has applied for a federal loan up to $4.5 billion. The company has until Sept. 30 to decide whether it wants to take the government’s money. American Airlines Group Inc. and Alaska Air Group have for now relied on their credit lines with the major banks and government aid.
American, which entered the year with the highest debt load of any major U.S. airline, has received $5.8 billion so far in federal grants and loans, while Alaska has received $992 million, according to recent filings. Both companies have applied for an additional $4.75 billion and $1.1 billion in federal loans, respectively.
Some companies have found enough cash in the capital markets for now. After its record bond sale last week, Boeing announced that it wouldn’t seek additional funding from the U.S. government options at this time.
U.S. Treasury bond yields whipsawed during Monday’s trading. The benchmark 10-year yield was as low as 0.599%, then jumped to 0.649% before settling at 0.636%, according to Tradeweb. That puts the 10-year yield down from 0.641% at Friday’s close. Yields fall as bond prices rise.
Treasury yields received a boost from Apple Inc., which disclosed a four-part bond sale on Monday in a regulatory filing. Following the iPhone maker’s announcement, the yield on the 10-year Treasury note jumped to around 0.631% from 0.610% a half-hour before.
Write to Sebastian Pellejero at sebastian.pellejero@wsj.com
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