We completed a debt analysis for all the airlines and have come to conclusions on the following questions:
Do we believe airlines will go bankrupt? Under the assumptions that airlines can pause aircraft purchase contracts b/c Boeing and Airbus are not manufacturing airplanes right now and the stimulus package can cover all salaries, we believe Southwest (LUV), Delta (DAL), and United (UAL) have the best chance of survival given their cash positions. With this said, we do not believe AAL will go bankrupt since travel will likely ramp back up in the next couple of months.
Which airlines will likely be most successful? LUV, DAL, and UAL will likely have the highest chance of success as their EBITDA to annual debt/finance obligations ratio is >1, meaning they can cover their obligations with earnings.
Which stocks are the best to purchase? LUV>UAL>DAL>AAL. There is a close tie between LUV and UAL. LUV has a higher cash/obligation ratio, while there is more upside for UAL.
Purchasing airline stocks during the COVID-19 crisis is a high-risk, high-reward bet. Please adjust your investments accordingly.
Disclosure(s): WX Capital held LUV, UAL, and AAL when this article was written.