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Airlines

Airlines Get $32 Billion Bailout With Several Strings Attached

Airlines Get $32 Billion Bailout With Several Strings Attached
Joe Cortez

The Senate has acted, and the airlines will receive bailout funds from the government – although they come with very tight guidelines. In light of this, some carriers are obtaining private loans to cover their own costs, while others are calling for even more aid from a “Phase IV” support plan.

After waning support for an airline bailout as part of a larger Coronavirus package, Congress will support the mostly-grounded American carriers after all. After passing the Senate on a 96-0 vote, the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act is expected to be passed by the House of Representatives before moving to the White House to be signed into law.

But how much relief will the airlines get? More importantly, what will they be able to do with the money once they receive it? Here’s how the CARES Act will affect airlines, their employees, and what the travel industry is promising when it’s all said and done.

The $32 billion aviation bailout plan

The bailout package from the federal government to the aviation industry is lower than what they asked for. Under the law, passenger airlines will get a total of $25 billion in financial assistance, while cargo air carriers will receive $4 billion and airline contractors will receive $3 billion. The money must be used for “the continuation of employee wages, salaries, and benefits.”

As already offered by the airlines, the money will come with terms and conditions each carrier needs to abide by. If the airlines accept bailout money, these three rules apply:

  • Airlines must not furlough employees or reduce pay rates and benefits until after Sept. 30, 2020
  • Airlines cannot buy-back their own shares through Sept. 30, 2021
  • Airlines cannot pay dividends or other capital distributions on the common stock through Sept. 30, 2021

Rules for executive officers apply as well. Although airlines are slashing executive payrolls, any company that accepts government money must limit officer salaries to whatever they received in 2019 for two years, through March 2022. Severance packages will be limited to “twice the maximum compensation received by the officer or employee from the air carrier…in calendar year 2019,” and executive compensation must be limited to $3 million and “50 percent of the excess over $3 million of the total compensation” in calendar year 2019.

Despite the bailout, airlines still seek private funding

Although airlines are getting guaranteed funding, how it will be distributed is yet to be seen. In addition, the government is considering offering the grants in exchange for partial ownership in the carrier. The Wall Street Journal reports the government is considering taking equity stakes as part of the grant process. The Treasury Department hasn’t commented on any specific plans.

In light of this, the airlines are also looking into alternate ways to get funding to keep operating as normal. In separate 8-K filings with the Securities and Exchange Commission, both American Airlines and United Airlines announced they would take loans in the short term. American is drawing a $1 billion loan under a secured delayed draw term loan credit facility, while United will take out $500 million from Goldman Sachs.

How the travel industry is responding

Although it isn’t the relief package that the airlines originally requested, the carriers are thankful to Washington for making the relief package happen. Shortly after the legislation passed the Senate, aviation industry consortium Airlines for America sent a press release thanking lawmakers for preserving aviation jobs.

“The Direct Payroll Assistance provisions in the legislation are designed to provide immediate financial relief that is necessary to continue funding the payrolls of U.S. airlines,” the press release reads in part. “During the current health crisis, air carriers have been doing everything possible to protect the 750,000 jobs of men and women who are directly employed by U.S. airlines – including pilots, flight attendants, gate agents and mechanics – as well as the 10 million jobs supported by the industry.”

On LinkedIn, U.S. Travel Association president Roger Dow highlighted some of the overall aid the travel industry would receive, including “$377 billion in loans and loan forgiveness for small travel businesses” and “$454 billion in federally backed financial assistance for impacted businesses.” However, the trade organization is calling for “Phase IV” assistance.

“These are challenging times, and the economic hardships I know you are all feeling won’t be fully erased with the stroke of a pen,” Dow writes. “This is why it is important for our industry to band together and continue to make our voice heard as Congress looks toward a Phase IV legislative package. We will continue to press for much-needed relief for the 15.8 million jobs America’s travel industry supports.”

While the CARES Act provides direct assistance to aviation workers and contractors, it does not specify options for hotels who are laying off or furloughing employees.

View Comments (5)

5 Comments

  1. bigbuy

    March 28, 2020 at 8:31 am

    Truly disgusting
    Airline workers will get fu pay while the rest of workers that get laid off get unemployment checks.
    Just goes to prove that taxpayers always get hosed when industries send in their high priced lobbyists.

  2. edgewood49

    March 29, 2020 at 7:42 am

    Can someone tell me how airlines are to keep all its employees if there is no one traveling ? Having said that I am a partner in a construction company in the western states and we are also grappling with the same issue. If projects are shut down due to the virus how do we keep workers on?

    This coming week is going to be interesting to see how small business tackles these issues.

    So tell me Joe, do you think after we come out of this are people going to walk back on overfly stuffed airplanes like American Airlines? I am betting that “cattle cars” maybe thinning out. I remember flying back to the US from Dubai on EK our plane left the gate three times and returned three times due to passengers in the packed main cabin became sick, and even then mid flight another one became sick they moved her to a blocked off section of biz. When we landed it took an hour for Hazmat etc to clear us to leave. We were told that a group was traveling Pakistan had eaten bad food, so we were told. Thinking back on that makes one wonder if traveling long distances in packed airplanes is worth it.

  3. AJNEDC

    March 31, 2020 at 7:56 am

    Cattle cars will not thin out. Once the virus has passed, it will be back to same ole same ole….

  4. MRM

    April 3, 2020 at 9:37 am

    I look forward to better services and more perks and a lack of price/fee increases from the airlines accepting my tax money once the COVID cloud has mostly passed.

  5. stablemate77

    April 15, 2020 at 8:45 pm

    thankful as soo little competion in usa dont want less

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