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Airlines’ $58 Billion Bailout Request Puts Scrutiny on Past

The coronavirus has touched every part of the aviation industry, from the behemoths to Silver Airways Corp.

Airlines’ $58 Billion Bailout Request Puts Scrutiny on Past
Travelers walk through Ronald Reagan National Airport (DCA) in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)  

(Bloomberg) --

Last week, Scott Kirby, the president of United Airlines Holdings Inc., described a “dire scenario” in which monthly sales would plunge 70% until the start of June, then 60% that month and 40% in July and August.

That outlook, it soon became clear, was too optimistic with the coronavirus pandemic destroying virtually all demand for travel. Airlines and their labor unions stepped up a push Monday for $58 billion in U.S. aid to weather a storm that has surpassed the 2001 terror attacks in terms of impact on the business. President Donald Trump said he would back the industry “100%.”

Airlines worldwide are making similar pleas for help as bookings evaporate.

The European Union said it is open to bailouts for the transport sector, while a new company controlled by the Italian treasury would take over bankrupt airline Alitalia under that nation’s plan to soften the impact of the pandemic. In Australia, where Qantas Airways Ltd. has scrapped almost all international services, the government said it is carefully considering the industry’s challenges.

Airlines’ $58 Billion Bailout Request Puts Scrutiny on Past

Europe’s Airline Aid Risks Reversing Decades of Privatization

Help in the U.S. is needed because “this crisis hit a previously robust, healthy industry at lightning speed,” Airlines for America said in a statement. The trade group outlined a proposal for $50 billion for passenger airlines and $8 billion for cargo carriers.

But the request for taxpayer assistance via loans, grants and tax relief comes after a decade of massive consolidation -- and billions in profits -- that put the industry in a far more robust condition than before.

What’s more, from 2010 to 2019, U.S. airlines spent 96% of their free cash flow, some $45 billion, to purchase shares of their own stock, according to data compiled by Bloomberg. The world’s largest carrier, American Airlines Group Inc., was the biggest buyer, spending $12.5 billion.

Share repurchase programs aim to help boost share prices. And that effort -- as opposed to using the cash to build up reserves -- is bound to draw attention as the question of aid is debated.

One interested party, the Air Lines Pilots Association, which represents United pilots, said in a memo to members late Sunday that it had recommended unsuccessfully during the good times that the airline build its cash reserves.

The pilots “will insist that any short-term impact and pain necessary to get through this crisis will be shared by all stakeholders—management, fellow employees, and vendors,” Todd Insler, the local president who is also a United director, wrote in the memo.

“In the future, there will be a time for a reckoning, blame, and restitution -- I assure you of that,” he wrote. “For now, we need management to focus on the enterprise, and we need to work together to survive.”

The coronavirus has touched every part of the aviation industry, from the behemoths to Silver Airways Corp., a closely held airline in Florida with fewer than 1,000 employees. Silver, which flies turboprops in the Caribbean and Florida, wrote to administration and Congressional officials on Monday seeking “immediate and direct assistance.”

Boeing Aid

Boeing Co. has asked White House and Congressional officials for short-term aid for itself, suppliers and airlines as the outlook for the travel industry worsens by the day, Bloomberg News reported. American and Delta Air Lines Inc. are in talks to arrange billions of dollars in new financing.

Boeing shares rose 3.6% to $134 pre-market Tuesday in New York. The stock dropped 60% this year through Monday’s close of trading.

There’s no telling what even the immediate future holds: One potential worst-case scenario would be a government-ordered domestic flying ban to help stem the virus’s spread, with the world’s largest airlines shutting down entirely.

On Sunday, the Centers for Disease Control and Prevention recommended an eight-week halt to any gatherings of 50 or more people, a scenario that technically includes every commercial jet save only a few models. On Monday, Trump told the public to avoid traveling, along with schools and restaurants, as a way to help arrest the virus.

The president promised relief without providing details. “We’re going to be backstopping the airlines,” he said. “We’re going to be helping them very much.”

‘Very Costly’

The industry is fortunate in that it didn’t have a lot of excess capacity before the virus outbreak, though a lot of planes will still have to parked, said Cliff Winston, a senior fellow of economic studies at the Brookings Institution and the author of several books on airlines.

“This is going to cripple them,” he said. “There’s no question about it. They can’t get rid of the capacity and it will be very costly to them.”

The U.S. industry has never made money during a recession and won’t if the coronavirus spurs one, Winston said.

“They’ve yet to demonstrate their ability to deal with that kind of shock.”

©2020 Bloomberg L.P.

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