Let's dig into what we know so far about US Government economic assistance to the largest domestic airlines those of us in America rely on to take us around the country and around the globe (hopefully we can all get back to that soon). As part of the $2.2 trillion economic relief package approved by Congress and signed into law by President Trump, US passenger carriers were eligible to receive more than $50 billion in grants and loans. The $25 billion in initial grants and loans that the airlines applied for earlier this year were part of the Payroll Support Program under the CARES Act. These monies were not all in grants alone. Seventy per cent of the funds were outright grants but the remaining 30 per cent were made available as loans. But all were focused on keeping workers on the job. In order to receive the funds, airlines had to agree to a number of conditions, including keeping employees on the payroll through the end of September.
In addition to the initial grants and loans, passenger airlines were also eligible to apply for a separate group of low interest-bearing loans payable over a 10-year period. A total of $25 billion in these loan funds were made available to them and airlines are just now reaching separate loan agreements with the US Treasury Department. So, grants have been awarded and loans are being processed. Does this mean all is well going forward? Not hardly since roughly 2,500 aircraft remain parked and the number of people flying is still far below prior years. With this in mind, let’s take a look at the largest US carriers. Just how much did each get from those initial grant/loan packages? How much did each carrier qualify for from the $25 billion remaining in the separate loan fund? Finally, and most importantly, what lies ahead for industry employees on October 1st?
#AmericanAir received $5.8 billion in total payroll support, including $4.1 billion paid as a grant and $1.7 billion funded as a low-interest payroll support loan. Company Chairman and CEO Doug Parker commended the assistance saying, "The support our government has entrusted to us carries immense responsibility and an obligation that American Airlines is privileged to undertake." The Treasury Department will acquire warrants to purchase approximately 13.7 million shares of American Airlines Group common stock at $12.51 per share. Warrants are financial instruments that can be converted into shares or other forms of debt or equity. American was also among the first 5 domestic carriers to reach a separate agreement with Treasury last week on terms for an additional $4.75 billion government loan which it expects to complete in the third quarter.
The airline has reduced its cash burn from $100 million per day in April to less than $35 million a day in June. Last week in a letter to employees, AA Chairman Parker and Company President Robert Isom, told workers it has more than 20,000 employees it will not need for its reduced fall schedule as the carrier continues to face weak demand for air travel during the COVID-19 pandemic. “To be clear, this doesn’t mean 20,000 of our team members will be furloughed in October, it simply means we still have work to do to right-size our team for the airline we operate,” the pair said in the staff note. At the depths of the demand crisis in April, the airline had around $11 million in cash receipts which rose to $358 million in May and more than $1 billion in June, the company executives explained. “While that improvement is encouraging, it compares with an average of $4.2 billion each month during the same period in 2019, so we have a ways to go,” Parker and Isom wrote. The company’s been encouraging voluntary leaves of absences and early retirements but it hasn’t been enough. Involuntary separation decisions are to be communicated this month but those staff members affected will remain on payroll until September 30.
Under the grant/loan portion of the CARES Act, #Delta Air Lines received $5.4 billion in total payroll assistance, with a grant of $3.8 billion and a $1.6 billion making up the loan support portion. The Treasury Department will again acquire warrants to purchase approximately one per cent of that company at a price of $24.39 per share. In April Delta reported that it was also eligible for another low-interest loan from the Government amounting to $4.6 billion and this week signed a letter of intent with the Treasury Department agreeing to its terms. Commenting on the recent agreements, Treasury Secretary Steve Mnuchin said, ”Treasury’s authority under the CARES Act to provide up to $25 billion in liquidity to passenger air carriers and related businesses will help preserve America’s aviation industry while also protecting taxpayers.”
Reduced travel demand forced the carrier to retire its domestic fleet of MD-88 and MD-90 aircraft in June, earlier than previously announced. It’s also closing its Cincinnati pilot base and will permanently ground 18 B777 jets deployed on its ultra long-haul routes by the end of the year. With these retirements, groundings, other aircraft taken out of service and drastic schedule cuts, Delta said in an internal memo that it will be overstaffed by 7,000 pilots alone come fall. This is more than half the number of pilots currently on payroll and will force the carrier to take a charge of between $1.4 billion and $1.7 billion in the second quarter. Company executives have already warned employees that the company will have to be smaller in the future. Delta had 91,000 employees at the end of 2019 and reported that already 37,000 of them have taken unpaid leave in order to help reduce costs.
#SouthwestAir was scheduled to receive a total $3.2 billion in initial Government aid through the Payroll Support Program, with $2.3 billion coming in as a grant and nearly $1 billion through a low-interest payroll support loan. The Treasury Department will acquire warrants to purchase 2.6 million shares in that airline at $36.47 per share. This gave the carrier the funding necessary to protect the jobs of its more than 60,000 employees through the close of September. Last week Southwest signed a letter of intent with Treasury on terms for their portion of the $25 billion in loan funds available under the CARES Act. Details were not yet available but company executives had previously announced they intended to apply for another loan of nearly $1 billion.
Since its founding in1967, Southwest has prided itself on never laying off or involuntary furloughing any employees. However, the COVID-19 crisis is pushing the airline to its limits. In a recent virtual Q&A video, CEO Gary Kelly said the airline may have to “radically restructure” as overstaffing becomes a risk and discussed what the carrier’s future could be as it weathers the crisis. Kelly didn’t specify exact numbers but did admit that Southwest faces a 30% capacity reduction heading into the fall. Any restructuring would most likely see the company retire its older B737s and postpone deliveries of new ones. Related jobs such as flight crews or maintenance personnel may face involuntary layoffs. While passenger numbers have been rising slightly recently, they’re not yet high enough for the airline to start making money again. One good thing in Southwest’s favor is that they’re primarily a domestic carrier with no international long haul services. That means they’re more likely to see capacity increases sooner than other US airlines which have to contend with ongoing international government restrictions.
A sum of $5 billion in total aid went to #United Airlines under the initial Payroll Support Program in April. About $3.5 billion of that was a direct grant and $1.5 billion was made as a payroll support loan. Again, the Treasury Department acquired warrants to purchase stock, in this case about 4.6 million shares in the airline’s parent company, United Airlines Holdings, at $31.50 per share. “This financial support is critical to our people who are ensuring air service to communities throughout the country and supporting the shipment of much-needed medical supplies and travel of health care professionals around the globe,” said United spokesperson Frank Benenati. Like other carriers, United reached agreement with Treasury this week on the terms of what they said earlier could amount to an additional $4.5 billion in federal loans to help them weather the pandemic.
bUnited reported that it saw travel demand slowly climbing through May and June but that new coronavirus outbreaks and quarantine orders have caused it to collapse yet again. The carrier expected to fly only about 40 per cent of its capacity in August and not more than that through at least the remainder of this year. Sadly, the airline reported on Wednesday that it would issue layoff and furlough notices to 36,000 employees, including 15,000 flight attendants and 2,250 pilots. (Yesterday, the carrier and the union representing its pilots did reach a tentative agreement on voluntary furloughs and early retirement packages.) The affected employees also include 11,000 customer service and gate agents, 800 catering workers, 1,000 contact-center employees, 225 network operations workers and 5,500 maintenance staff. An additional 1,400 management and administrative employees could also be affected. While this is the sharpest cutback announced by any major US carrier to date, United said that final numbers would depend upon how many more employees take voluntary leave and buyout packages. The airline also said they do not expect a full recovery until there is an effective vaccine or treatment.
Things are looking bleak for many industry workers. We can only hope to flatten the curve by then to help lessen the blow of what's likely to be major staff reductions across the board.
Until next time…stay safe.
So sad for the airline industry. Interesting statistics you gathered. You do impressive research for these articles. Great job!!
The impact on staff of these companies is very sad but realistic given the continuing aversion to flight travel. Southwest are in the best position...