American Airlines announced that it will receive a $5.8 billion bailout: $4.1 billion grant, and $1.7 billion loan. They will also apply for a separate $4.75 billion loan.
Southwest Airlines announced that it will receive $3.2 billion: a $2.3 billion grant and a $1 billion loan. Additional airlines are expected to release details of the packages that they’re receiving, and will have to file SEC 8-Ks with full financial terms. Alaska, Allegiant, Delta, Frontier, Hawaiian, JetBlue, United, and SkyWest have all said they will participate according to the Treasury Secretary.
In exchange airlines will be offering warrants, meaning the government takes a stake in the carriers. This represents about 3% of the bailout value at current share prices. However if airlines recover, their stocks double, and they’re able to repay the loans then the government gets about 36% of taxpayer money back. Loans are for 10 years at low interest and can be repaid in advance at any time.
Taking these loans airlines agree to,
- No involuntary furloughs or reductions in pay rates through September 30
- No share buybacks or dividends until September 30, 2021
- Limits on executive pay until March 24, 2022
- Continue service to existing cities, with certain exemptions
Airlines balked at the conditions, and mostly complained (quite loudly) that 30% of the funds they’re being given must be repaid. The Treasury Secretary stuck to those requirements, and airlines are taking the money and outwardly grateful. Their lobbyists – and union leaders like Sara Nelson – who claimed conditions would mean the airlines wouldn’t take the money and workers would be laid off come out looking pretty badly.
However taxpayers should never have been on the hook for 100% of airline payroll. Airlines weren’t going to furlough everyone. And airlines have been encouraging employees to take leave or early retirements that save them on payroll cost. Getting 70% of the money in grants more than covers paying employees who would have lost their incomes, with plenty extra to spare, which is why they’re taking the money.
Since so many airlines have been reluctant to refund cancelled flights, I wonder if airlines would be willing to take their subsidies in the form of travel vouchers?
American has generally been an exception, honoring refunds, though as close to departure as flights have cancelled that hasn’t always helped.
Once September rolls around, if there aren’t enough voluntary leaves, expect workers to be furloughed. In a letter to employees, American Airlines CEO Doug Parker says that after September 30 “we hope and expect that Americans are regularly flying again.” There will certainly be some Americans flying regularly, not enough to support airlines at the size and payrolls American, Delta, and United have run.