Airline Deal Takes Off As Planes Stay Grounded

Key Takeaways

  • Airlines to receive $25 billion in loans and grants to pay employees
  • U.S. Treasury will be issued warrants or the right to buy stocks
  • Passenger volume is down 97%, over 2,000 planes are parked

Shares in major U.S. airlines are trading higher after the companies reached an agreement in principle with the federal government for $25 billion in emergency aid. The money will be in the form of payroll grants and low-interest loans. Employees’ jobs and salaries are protected until September 30 and the U.S. Department of Treasury is receiving warrants to acquire stock, according to the terms of the deal. Airlines have also agreed to limitations on stock buybacks, dividends and executive compensation.

“Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines, and Southwest Airlines have told us that they plan to participate in the Payroll Support Program,” said U.S. Treasury Secretary Steven T. Mnuchin in a statement yesterday. “We look forward to working with the airlines to finalize the necessary agreements and disburse funds as quickly as possible.” According to reports, the assistance was delayed and there was impasse after the Treasury insisted that part of the money be in loans.

Here’s what we know so far about who gets what:

  • American Airlines (AAL) – $5.8 billion ($4.1 billion in direct support, $1.7 billion in low-interest loan. Also plans to apply for $4.75 billion loan from Treasury)
  • Delta (DAL) – $5.4 billion ($3.8 in direct support, $1.6 billion in low-interest loan. Government gets warrants to acquire about 1% of stock at $24.39 per share over five years)
  • JetBlue (BLUE) – $935.8 million ($685.1 million in direct support, $250.7 million in low-interest loan)
  • Southwest (LUV) – $3.2 billion ($2.3 billion in direct support, nearly $1 billion in low-interest loan. The loan includes approx. 2.6 million warrants issued to the government)
  • Alaska Airlines (ALK) – $992 million ($267 million in low-interest loan. Treasury will receive the right to buy 847,000 non-voting shares of Alaska Air Group at a price of $31.61/share)

The Treasury says it is continuing talks with other airlines and working to review and approve applications for smaller passenger air carriers. Cargo carriers and contractors have been promised further guidance “very soon.”

The U.S. airline industry has been one of the worst hit in the coronavirus crisis. Travel restrictions and the economic slowdown has led to a dramatic fall in demand. “Passenger volume is down 97%, equating to a customer level we have not seen since 1954,” said Airlines for America President and CEO Nicholas E. Calio in a statement. “Airlines have parked 2,240 aircrafts, and they are burning through cash at a rapid rate – $10-12 billion a month – as cancellations far outpace new bookings.” As of April 10, Fitch Ratings has lowered its credit ratings on every publicly traded U.S. carrier.

Yesterday the International Air Transport Association said global airline passenger revenues will drop by $314 billion in 2020, a 55% decline compared to 2019.

Source: Airlines for America.

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