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The Federal Reserve and other bank regulators are flashing a new warning sign for the U.S. economy: Businesses ravaged by Covid-19 are sitting on $1 trillion of debt and a high percentage of it is at risk of going bust, Bloomberg News reported. Watchdogs flagged 29.2% of complex corporate lending as troubled in 2020, up from 13.5% in 2019, according to a report released yesterday by the Fed and other agencies. Real estate, entertainment, transportation, oil and gas, and retail were cited as particular problem areas. A “disproportionate share” of the riskiest loans were held by nonbanks, such as investment funds that engage in leveraged lending, insurers and pension funds, the regulators added. “While risk has increased, many agent banks have strengthened their risk management systems since the prior downturn and are better equipped to measure and mitigate risks associated with loans in the current environment,” the Fed, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency said in a statement that accompanied the release of their Shared National Credit Review. Still, banks’ share of the weakest loans has also been rising, with some of their holdings -- particularly those associated with oil and gas -- facing credit downgrades during the pandemic, the report found. Banks’ percentage of borrowings deemed below the standards preferred by regulators increased to 45% from 35% a year earlier. For their report, the Fed and other agencies evaluated $5.1 trillion in complex lending involving multiple firms, with half of it representing leveraged loans. Real estate, entertainment, transportation, oil and gas, and retail represented 21.6% of the lending that the regulators examined. The 29.2% of “non-pass loans” highlighted in the report represent those the agencies categorize as meriting “special mention,” being substandard or at risk of triggering losses for lenders. During the pandemic, the debt load involving leveraged lending -- borrowings by the riskiest companies -- has been on the upswing. In so-called syndicated loans backing U.S. acquisitions, leverage surged to at least a five-year high in the fourth quarter, according to Covenant Review.

The U.S. affiliate of a large international airline filed for chapter 7 bankruptcy on Feb. 12, the South Florida Business Journal reported. Fort Lauderdale-based Norwegian Air Resources US Inc. filed for bankruptcy in the U.S. Bankruptcy Court for the Southern District of Florida, according to court filings. The filing is part of a larger reorganization strategy from parent company Norwegian Air Shuttle, an international airline that connected Fort Lauderdale-Hollywood International Airport to international destinations including Amsterdam; Madrid; Oslo, Norway; Stockholm; Barcelona, Spain; and Paris. International travel, especially to Europe, has been close to nonexistent because of the COVID-19 pandemic. Many countries have placed regulations on travel to and from the U.S. The Norwegian Air subsidiary had $921,000 in total assets and $5.3 million in total liabilities, according to court documents. In addition to the bankruptcy filing, Norwegian Air Resources US filed a Workers Adjustment and Retraining Notification Act notice with the state Feb. 12. The company said it permanently laid off 152 workers at FLL, effective Feb. 11.

Air travel has recovered somewhat in recent months, but it remains deeply depressed compared with 2019, and no one knows when business will return to more normal levels, the New York Times reported. Two essential moneymakers for airlines — corporate and international travel — are likely to stay sidelined for another year and possibly much longer. Now and for the next several months at least, airlines are flying whoever they can wherever they can. That often means catering to a small group of hardy leisure travelers who are undeterred by the pandemic to travel to ski slopes or beaches. “As a quick strategy, fly where people are,” said Ben Baldanza, a former chief executive of Spirit Airlines, the low-cost carrier. “That’s been a real smart strategy, but that’s not a long-term way for those airlines to make money.” But leisure travel offers limited comfort to an industry so thoroughly clobbered. Tourists and people visiting family and friends typically take up most of the seats on planes, but airlines rely disproportionately on revenue from corporate travelers in the front of the cabin. Before the pandemic, business travel accounted for about 30 percent of trips but 40 to 50 percent of passenger revenue, according to Airlines for America, an industry association. And those customers aren’t expected to return in great numbers any time soon. The four largest U.S. airlines — American, Delta, United and Southwest Airlines — lost more than $31 billion last year, and the industry over all is still shedding more than $150 million each day, according to an estimate from Airlines for America.

Sun Country Airlines, an ultra low-cost air carrier backed by private-equity giant Apollo Global Management Inc, filed for an initial public offering on Monday, banking on a rebound in air travel as countries roll out vaccines against COVID-19, Reuters reported. Minnesota-based Sun Country, which offers affordable flights and vacation packages to destinations across the United States and in Mexico, Central America and the Caribbean, said it would list its stock on the Nasdaq under they symbol “SNCY”. Founded in 1982 by Jim Olsen and a small group of pilots and flight attendants, Sun Country began flight operations in 1983 with a single Boeing 727-200 aircraft. The airline, which has been bought and sold a few times over the years, was forced to declare bankruptcy after the Sept. 11 2001, attacks on the United States and was hurt again by the recession of 2008 and the revelation of financial fraud. The airline, a contract cargo operator for Amazon Air, filed for chapter 11 bankruptcy protection for the second time in 2008. The company was eventually bought by Apollo in 2017. Sun Country’s IPO comes as U.S. capital markets are poised for another banner year, with January’s IPO haul totaling $33.9 billion, according to Refinitiv data.

United Airlines said on Friday that it warned some 14,000 employees that they might be furloughed, and aviation unions made a new request to Congress and President Joe Biden for another $15 billion in government assistance to keep workers on the payroll through at least Sept. 30, Reuters reported. Chicago-based United warned that once a second round of payroll support expires on April 1, airlines could be forced to make drastic new cuts as the coronavirus pandemic has slashed demand for air travel. United had recalled 13,000 employees from furlough when a $15 billion airline industry payroll package was passed in December to protect jobs through March. “Despite ongoing efforts to distribute vaccines, customer demand has not changed much,” United told employees, while saying it was monitoring demand and advocating for continued government support. The $15 billion in December helped bring back more than 32,000 airline employees and followed a $50 billion package in March for passenger airlines divided between payroll assistance and low-cost government loans.

A pilots' union for Mexico's Grupo Aeromexico said it had accepted cuts amounting to $350 million on collective bargaining pacts in negotiations required for the airline to win a second tranche of bankruptcy financing, Reuters reported. The Association of Airmen Pilots (ASPA) voted to accept the reduction over the next four years to support the firm's financial restructuring, it said in a statement. Salary cuts for pilots ranged between 5% and 15%, while 79 pilots facing job cuts will be compensated under the agreement. The pilots also accepted fewer benefits, the union added. Aeromexico filed for chapter 11 protection in a U.S. court in June, after the coronavirus pandemic slammed the global travel industry. The carrier was approved for up to $1 billion in debtor-in-possession (DIP) financing, and received an initial $100 million payment in September. The company said in December it had completed negotiations with two other unions.

U.S. airlines carried 61% fewer passengers in November over the same month in 2019 as the coronavirus pandemic continues to discourage air travel, the Transportation Department said yesterday, Reuters reported. The decline was down slightly from the 62% decline in October. The largest 21 U.S. airlines carried 28.5 million passengers in November down from 72.8 million passengers in November 2019. It was the lowest monthly decline since April, when air travel fell to just 3 million passengers, down 96%.

Airlines are betting that coronavirus vaccines will reignite demand for travel this year. The question is when, according to a Wall Street Journal report. Delta Air Lines Inc. Chief Executive Ed Bastian expects improvement starting this spring. Alaska Airlines President Ben Minicucci said he hopes to get back to 80% of pre-pandemic capacity by summer. United CEO Scott Kirby, however, said travel may not start getting back to normal until vaccines are widely distributed — in late 2021. “I recognize a lot of people are saying it’s going to happen faster, and I hope they’re right,” he said in a December interview. “This is one of those strange situations where I think we’re probably better at forecasting what’s going to happen a year from now than we are what’s going to happen next quarter.” Their strategies for coping with the uncertainty are just as diverse. Airlines are shutting down some international markets and running reduced schedules while also buying new planes and adding new cities in an attempt to capture demand where it exists. United is returning to New York’s John F. Kennedy International Airport in February after a five-year absence, while rival Southwest Airlines Co. plans to fly from Chicago’s O’Hare International Airport for the first time ever in 2021. JetBlue Airways Corp. is also adding flights this year at Miami International Airport — the busiest U.S. airport it didn’t yet serve.

Mexican pilots have rejected a cost-saving plan put forward by their own trade union amid talks aimed at agreeing how to restructure airline Grupo Aeromexico, the ASPA union said on Thursday, Reuters reported. Battered by the coronavirus pandemic, Aeromexico filed for chapter 11 protection in a U.S. court in June, and is trying to secure a second tranche of financing. In a statement, the ASPA said the majority of its pilots had in a vote rejected the plan put forward by the union as an alternative to Aeromexico’s own proposal, but that it would keep exploring other options to aid restructuring efforts. The airline earlier this year had up to $1 billion in debtor-in-possession (DIP) financing approved, and received an initial $100 million payment in September.