Airlines Agree To Bailout Terms. Will They Take Travel Vouchers Instead?

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.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. “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?”

    Great question, Gary! 🙂

  2. What “current” price do the warrants lock in at? Given how much the airlines rallied the government is already losing out.

  3. Parker failed to praise Trump in the AA press release. That seems to be a requirement to secure federal assistance according to the daily coronavirus propaganda sessions at the White House.

  4. Mnuchin should have told them: “Go talk to Warren Buffett. Whoever gets the deal done first will probably make out best, so advise you to hurry.”

  5. Given the absolutely horrific situation the airlines found themselves in (zero revenue and billions in fixed costs) this deal seems pretty darn good for them. Airline employees made out like bandits, but we’ll see what happens to them in the Fall. The Feds are basically making a bet that a healthy airline industry will stimulate the economy. Many people, including the author of this blog, vastly underestimated the damage that a failing airline industry might due to the economy. We’ll see if the Fed’s bet is a good one. There are still so many unknowns at this point.

  6. Meanwhile, small businesses are shuttering every day with a limited package that has yet to even show light in getting to bank accounts. But nice to know that senior pilots making over $300K are sitting at home comfortably on the shoulders of American taxpayers. Apparently saving the workers only applies to large corporations, whose workers have managed to get grants for grotesque salaries when small businesses (rightfully) were capped at salaries of under $100K.

  7. @Billy Bob: Lufthansa is still being very tight-fisted with my $$$.

    I’ve got four sets of paid tickets, of which they will refund none. They told me that they are fighting for their corporate life now. Maybe later we will think about giving you a refund. When that time comes, they will wonder where their dependable customer base went. Unlike what they think, loyalty IS a two way street.

  8. Shows you how hollow the entire “your ticket is a contract” fallacy is.
    Sure it’s a contract, if you wish to breach we penalize you in every way imaginable.
    However, if the airline breaches, go get in the unsecured creditors line, maybe we’ll refund you if we get a bailout.
    P.S. Wonder if they will still be charging fuel surcharges with oil at lowest prices in recent history.

  9. Small business is suffering and filing for bankruptcy in record numbers and Ruth’s Chris Steakhouse got $20 million. How did they do that when the limit was $10 million? They have 2 subsidiaries that got $10 million each. And they got it 4 days after the program was launched through Chase. Small business couldn’t even get on Chase’s website for a week. Another 5 million on unemployment expected on the report tomorrow. When the 8 weeks is up there will be an onslaught of unemployment. I would bet good money when 1 October rolls around the airlines will lay people off in numbers never even imagined.

  10. @OneXMarine: My girlfriend is the President of a small media company (34 employees) and Chase is their bank. She struggled for almost 2 weeks to get the paperwork in and therefore missed the first wave of dole-outs. She said Chase gave their larger customers concierge services so they could claim they got a higher amount of money for their clients.

  11. @WileyDog: Yes they did and I’m sure your girlfriend is aware that there has been a lawsuit filed against Chase, BOA, US Bank, Frost, and Wells Fargo in California. They have asked for a Class Action ruling and therefore the rest of us can jump in without have 1000’s of attorney’s involved. I have 2 companies and I got my paperwork in on the 1st one the 1st weekend and the 2nd one a week later. But then they didn’t want all the paperwork your girlfriend and I spent hours working on to put together. Yesterday Chase and the 9 other largest banks in the world were sued for manipulating the bond market and making billions of dollars. As soon as this is over I’m out of Chase so fast they won’t know I was even there. I feel sorry for my banker as she’s a super lady but I don’t want to be a part of the Chase family any longer.

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