American Airlines Drops 4% On Plans To Sell 38.5M Shares

American Airlines announced a plan to sell 38.5 million shares of its common stock in an underwritten public offering. Shares dropped 4% in Tuesday’s extended market session after closing 6% lower on the day.

The US airline said it priced the stock offering, without providing details, and has hired BofA Securities to sell the shares in one or more transactions on the Nasdaq, in the over-the-counter market. According to Reuters, the offering is priced at $13 per share, reflecting a discount of 1.5% to the airline’s closing price on Monday. Furthermore, American Airlines (AAL) has granted the underwriter of the offering a 30-day option to purchase, in whole or in part, up to 5,775,000 additional shares of common stock.

“The Company expects to use the net proceeds from the offering for general corporate purposes and to enhance the Company’s liquidity position,” American Airlines commented in a statement.

The offering is expected to close on November 12, subject to customary closing conditions. Following the offering, American Airlines will have a total of 547,131,777 shares outstanding.

American Airlines said it expects to finish the fourth quarter with more than $14.5 billion in total available liquidity, up from the $13.6 billion of total available liquidity at the end of the third quarter.

Although the airline saw improvements in passenger demand and load factors during the third quarter, both remain significantly below 2019 levels. For now, it forecasts 4Q system capacity to be down more than 50% year-on-year, with long-haul international capacity down about 75% during the same period.

Shares in American Airlines have lost 57% of their value so far this year as US airlines have been burning through billions of dollars, incurring huge losses and implementing broad cost-cutting plans, as well as taking steps to shore up their cash buffers. (See American Airlines stock analysis on TipRanks).

Seaport Global analyst Daniel Mckenzie last month reiterated a Buy rating on the stock based on the assumption of a travel recovery in 2021.

However, in the near-term Mckenzie expects the industry to incur more large losses, including $8.5 billion in the fourth quarter, with “a downward bias tied to a second wave that appears increasingly likely per experts.”

Overall, the rest of the Street has a moderately bearish outlook on the stock. The Moderate Sell analyst consensus breaks down into 4 Sells, 1 Hold, and 2 Buys. That’s with an average analyst price target of $9.33 implying 25% downside potential lies ahead over the coming year.