American examines options for aircraft financing in 2011 and 2012

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American Airlines believes access to the credit markets is improving as it looks to finance 35 aircraft deliveries scheduled during the next two years.

The carrier raised $6 billion in financing during 2009, and part of the proceeds from those transactions are being used to finance eight of 15 Boeing 737-800s scheduled for delivery next year. Now American is examining options to secure financing for the remaining seven deliveries scheduled in 2011 and 28 aircraft due for delivery in 2012. The -800s are being used to phase out American's older, less fuel efficient MD-80s.

American is currently looking at the debt markets or sale-leaseback transactions to support the deliveries, said carrier vice president of corporate development and treasurer Beverly Goulet in a recent interview with ATI.

Goulet believes a couple of financing markets are currently robust including enhanced equipment trust certificates (EETC) and sale-leaseback transactions. "We certainly have a significant range of financing options available to us right now," she says. "And on terms that have improved substantially versus what we were seeing a year ago."

American has in excess of $2 billion in debt coming due in 2011, and Goulet explains as the carrier pays the debt off "we will free up very attractive aircraft collateral. So you might see us move to refinance some of that collateral".

Similar to other US carriers, American is also working to strengthen its balance sheet. "We are very highly leveraged at this point," Goulet explains. The carrier is trying to find the right balance between the amount of cash it wants to carry "to make sure our liquidity is at levels we're all comfortable with", says Goulet. Analysts at CRT Capital estimate American's net debt is roughly $10.6 billion while the carrier's total debt is $15.1 billion. American's current cash balances are close to $5 billion.

Currently the airline is "inclined to still be relatively conservative and carry relatively large amounts of cash", Goulet explains. "But we want to balance that with beginning to get on with paying down debt as we're able, but at the same time recognising that we have to get on with the replacement of our MD-80 fleet."

As of 30 September American operated 237 MD-80s, and Goulet says the portion of owned versus leased is roughly half and half. She acknowledges while the carrier could sell some of the owned aircraft, it is "not a great market" for the MD-80.

Instead American is harvesting parts from some of its owned MD-80s for use on the aircraft that remain in its fleet to supplement its spare parts inventory.