Sources of liquidity
As of September 30, 2014, American had $8,774 million of cash and short-term investments and an undrawn revolving credit facility of $1,000 million. Out of the cash balance, $875 million was restricted cash. Also, 721 million was held in Venezuelan bolivars due to problems associated with the repatriation of funds, as discussed in Part 4 of this series. However, during the quarter, cash held in Venezuelan bolivars decreased by $70 million.
During the nine months of 2014, American Airlines generated $2,276 million cash from operations. It used $2,125 billion for investing activities and $113 million for financing activities, adding $38 million to the opening cash balance. Investing activities primarily included cash outflows of $4,006 million for the purchase of aircraft.
Additionally, American saw an inflow of $1,390 due to a decrease in short-term investments and $307 million of proceeds from sale of slots at Washington Reagan National Airport during the merger. For more details on the sale of airport slots, see Why the American-US Airways merger was conditional.
Cash flow from operations
American’s (AAL) free cash flow was -$1,730 million during the period, because the company’s cash flow from operations was not sufficient to cover its capital expenditures. Free cash flow is the measure of cash available for debt and equity holders after meeting working capital requirements and capital expenditure.
All of American’s peers, including Delta Air Lines, Inc. (DAL), United Continental Holdings Inc. (UAL), Alaska Air Group, Inc. (ALK), JetBlue Airways Corporation (JBLU), and Southwest Airlines Co. (LUV), had a positive free cash flow during the nine months ending September 30, 2014.
These companies are part of the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN). Companies with positive free cash flow are in a better position to provide higher returns to shareholders.