The CARES Act included $58 billion for passenger and cargo airlines, plus another $3 billion for airline contractors (and $17 billion on the table for Boeing).
Out of that $58 billion, half is for payroll support. The Department of Treasury offered the payroll support 70% in direct grants, and 30% in low interest loans. In exchange the government takes 3% of the bailout value in stock warrants, the right to buy the airline’s stock later at current prices.
Taking these funds 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 have worked to convince employees to take voluntary leave (both paid and unpaid). And they’re going to schedule employees for minimum hours. Both of these measures save money.
Since the airlines weren’t going to lay off everyone without bailouts, they likely come out ahead paying employees out of grant funds and not imposing furloughs through the end of September.
United has said that once the requirement to keep everyone on payroll through September lifts, they expect to keep fewer people on payroll. That’s both the reality of lower travel demand and positioning for the next bailout.
One Mile at a Time reports that JetBlue has come up with a way to take bail out funds and still pay workers less. in other words, a double cross to keep the cash for themselves.
All support and salaried JetBlue employees are being “required to take 24 days of unpaid time off (UTO) between April 20 and September 30, 2020.”
- This isn’t a furlough
- It isn’t reducing an employee’s rate of pay
It’s reducing the amount paid to employees by reducing their time worked. And JetBlue believes this is a legal workaround,
Through this UTO initiative, we are reducing work schedules across the company, which is in line with guidance outlined by the CARES Act.
Now Ben Schlappig “recognize[s] airlines are in a bind here” because of challenges they’re facing in their business.” I disagree. The whole point of the money being granted to airlines was so that their employees would keep earning as much as they earning before. Without that stipulation, the bailout would not likely have passed (at least in the form that it did).
Ben writes, “This isn’t an act of greed, or anything, but rather is JetBlue management trying to fight for survival.” To be clear it’s taking money appropriated by Congress for the airline’s employees, for the survival of shareholders’ equity. Surely this was too clever by half?
For those of you who favored the bailout when will you ever learn?