CHARLOTTE, N.C. (TheStreet) -- American Airlines (AAL) is starting out with $10.3 billion in cash, which a leading airline analyst said might be enough to lead to consideration of a dividend -- but not until 2016.
JPMorgan analyst Jamie Baker said Delta's (DAL) May 2013 announcement that it will pay a dividend "was the key driver of the (airline) sector's excess equity returns last year." During the year, Delta shares rose 131%, while United (UAL) shares rose 58%. United has said it will contemplate a dividend in 2015. Alaska (ALK) and Southwest (LUV) also pay dividends.
"It seems to us that UAL is basically following the DAL playbook with a two-year lag or so in terms of capital redeployment, " Baker wrote in a report issued Wednesday. "However, we don't think AAL will wait until 2017 to redeploy some of this excess liquidity."
Baker's note followed an American filing with the Securities and Exchange Commissioner. Baker said the filing, which includes fuel price estimates and contains "no surprises," supports his fourth-quarter earnings estimate of 65 cents a share. Consensus is 52 cents, so "others may take a more optimistic view of guidance," he said.
As for the $10.3 billion cash reserve, it is more than enough for a consistently profitable $40 billion revenue enterprise like American, Baker said. The carrier "can easily rest comfortably with 10%- 15% cash/revenue, or $4 billion to $6 billion, implying that several billion in excess liquidity can be allocated to further debt reduction or used to reward shareholders when the time is right.