U.S. Airline Industry Desperate for Next Round of Stimulus

Another round of stimulus of $14 billion likely for the US airline industry, but recovery still far.



Another $15 billion in bailout funds is being considered for the hard-pressed U.S. airline industry by the US Congress, bringing a much-needed reprieve for employees threatened by furloughs.

The earlier round of bailout expires by March-end, and with no relief in sight, United and American Airlines both had put 27,000 employees on notice.

The government has finally agreed on a $1.9 billion economic stimulus package, long hanging approval since November of last year. The extension of the airlines’ Payroll Support Program — $14 billion for airlines and $1 billion for their contractors — will take the total earmarked for the industry to $63 billion.

The PSP extended to the airlines in March 2020 came with conditions of no new furloughs and pay cuts.

Hopes of a recovery in a few months has not happened, and the health crisis is not abating despite the vaccine roll-out.

U.S. Airline Industry American Airlines

American Airlines has suffered the biggest setback with funds depleting from $3.8 billion in 2019 to minus $6.5 billion in 2020. (Image: Boeing 737, American Airlines)

Travel has yet to recover and remains at a third of 2019 levels. The International Air Transport Association (IATA) forecasts a full recovery globally only in 2024. “It seems like the system is a little bit on autopilot,” said consultant Matt Barton of Flightpath Economics. “The industry is obviously still completely upside down. Does another extension simply delay the inevitable? Does it just make it harder for the industry to adjust?”

The third tranche of aid would help the airlines until September 30, 2021.

A memorandum issued by a financial services committee says, “According to some estimates, major US airlines lost over $35 billion in 2020, and although demand for air travel has increased in recent months, airlines do not expect to return to profitability until midway through 2021.”

American Airlines has suffered the biggest setback with funds depleting from $3.8 billion in 2019 to minus $6.5 billion in 2020. Revenue fell 62 percent to $17.3 billion. With the PSP barring furloughs, its bill for salaries, wages and benefits was $10.9 billion, only 13 percent lower.

PSP funding last year was equivalent to 43 cents of every dollar reported as cash and short-term investments at the end of December for all the big Airlines of the US.

According to the Peter G Peterson Foundation, nearly $35 billion of the $48 billion allocations has been given out.

The treasury has allowed warrants for US taxpayers, making them eligible to buy shares in the US airlines. Between 8 percent and 20 percent of the four main carriers will be citizen-owned now. How much those stakes will be worth, if anything, depends on what happens next to air travel.

All previous crises like the September 11 attacks saw recovery of airlines travel within three years. The 2008 financial crisis saw airline travel reach the previous level longer.

In particular, business travel, that is most lucrative, needs to recover fast. Deutsche Bank analysts note that while several carriers could break even on a cash flow basis in 2021, “most are at least a year away from sustainable profitability.”

Another problem facing the industry is the fleets lying idle. The government needs to find alternative sources of employment for people laid off in the transport industry. Pilots need to meet certain criteria to maintain their legal certification to fly jetliners.

Doug Parker, American chief executive, said the company would fly less than anticipated this summer, and so “we are fully behind our union leaders’ efforts to fight for an extension [of the PSP]. Our nation’s leaders understand the vital role airline workers play in keeping the country moving.” Sara Nelson, president of the Association of Flight Attendants, which has 50,000 members, said there was Congressional support for the program “to continue until we can get the pandemic under control.”

Experts feel the industry needs a bailout similar to the auto industry given under Barack Obama. Saving the airline industry means saving the economy as other ancillary and associated sectors also benefit.

There is a note of caution sounded by Barton of Flightpath Economics. He says, “But it’s time to get real. It’s time to accommodate the fact that the reality is fundamentally different now.” If capacity continues to exceed demand, “then the question becomes, do you continue to support employees and airlines at this magnitude until 2023 or 2024?”

Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

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