American and United airlines, two of the largest U.S. carriers, will benefit from significantly lower tax rates after GOP-led cuts that boosted the bottom lines of both companies at the end of last year.
American, based in Forth Worth, Texas, will see the rate used to calculate its filings with the Securities and Exchange Commission drop to 24 percent from 38 percent, CEO Doug Parker told investors on Thursday. It also recorded a $7 million benefit in the three months through December and expects to receive cash refunds of $170 million each in 2019 and 2020.
The carrier, which became the country’s largest airline after its merger with US Airways in 2013, is still benefiting from losses in previous years, which keep it from having to make actual cash payments to the Internal Revenue Service. It still must inform shareholders, however, of the so-called book rate that would otherwise apply to its profits.
“The new law will substantially reduce the company’s tax bill in the future, when we do become ... a cash taxpayer, which will be a significant benefit for all of our American shareholders,” Parker said.
United, the third-largest carrier, said earlier this week that its rate would also drop to 24 percent. That compares with 29 percent last year, according to executives at the Chicago-based carrier, which posted a $192 million benefit from the bill in the three months through December.
The law, designed by President Trump and congressional Republicans to foster U.S. economic growth by freeing cash that companies could invest in factories and jobs, trimmed the top corporate rate to 21 percent from 35. It also allows businesses to move overseas assets back to the U.S. without penalty after a mandatory one-time fee of 15.5 percent on cash holdings and 8 percent on everything else.
Previously, businesses paid applicable U.S. rates on any foreign assets moved to the U.S., even when they had been taxed already in the country where they were located.
Commercial airlines, which fly 2.2 million passengers a day and contribute about $1.5 trillion to the U.S. economy each year, typically pay the highest corporate rates since they don’t qualify for many of the breaks available to other industries.
“These historic reforms to our nation’s tax code come as welcome news to the industry,” Nicholas Calio, head of the industry lobbying group Airlines 4 America, said in a statement after the House and Senate approved the tax cuts. “U.S. airlines stand ready to continue leading the way toward a new era of job growth and economic development.”
American’s adjusted fourth-quarter earnings of 95 cents a share topped the 92-cent average estimate from analysts surveyed by FactSet. Including special items such as a bonus paid to workers after the tax cut, merger costs and fleet-restructuring expenses, the carrier’s net income fell 11 percent to $258 million, or 54 cents a share.
United’s earnings of $1.99 a share in the fourth quarter also topped estimates. Its net income climbed 46 percent to $580 million, the company said in a statement.