A flight attendant arrives at Tom Bradley Terminal at Los Angeles International airport in Los Angeles, California on March 16, 2020.
Agustin Paullier | AFP | Getty Images
U.S. airlines’ first plea for $58 billion in government aid to weather coronavirus landed with a thud among lawmakers and the public.
Carriers requested half of it in grants that they wouldn’t have to pay back, drumming up criticism about everything from hitting passengers with myriad fees to skimpy leg room to the billions carriers spent on buying back their own shares.
But the matter was urgent for the industry. Demand was cratering as governments, including the U.S., imposed severe travel restrictions, consumers’ flight cancellations outpaced new bookings, and airlines dramatically reduced capacity to respond. President Donald Trump said several times over the past several weeks that airlines would receive government aid.
Labor unions quickly changed the narrative, pushing the industry toward a pledge to not furlough workers in exchange for the grants — at least through the summer. Their efforts were instrumental in getting approval for the airline aid, one of the most contentious parts of the $2 trillion coronavirus relief bill, which passed the House on Friday, in the Senate earlier this week.
“We basically said to the airlines: the public doesn’t like you,” said Sara Nelson, president of the Association of Flight Attendants, which represents 50,000 cabin crew members at airlines including United, Spirit and Alaska “You’re not going to get anything but but we can get something to keep people on the job.”
Nelson, a prominent labor leader before this crisis who railed against the government for not paying aviation workers during last year’s partial shutdown before it ended hours after a shortage of air traffic controllers disrupted flights, said she’s learned lessons from previous industry bailouts, including following the Sept. 11, 2001 terror attacks that left carriers on shaky footing and led to thousands of layoffs in the tumultuous decade after.
“When you send the money to the companies and the banks, the money doesn’t come down to the workers,” said Nelson in an interview. “Fundamentally, that was what we wanted to fix.
“I was sure we we were going to drive the train this time,” she said.
Nelson sent a framework for airline grants that would go expressly to payroll to payroll to Rep. Peter DeFazio, an Oregon Democrat and chairman of the House Committee on Transportation and Infrastructure. The framework informed the House bill, said Nelson and another person familiar with House Democrats’ negotiations.
A proposal by Republican Senators provided airlines the sum they wanted but only in loans, falling short of the industry’s ask, while Democrats fretted that the industry would receive a blank check.
Nelson reached out to senators including New York Sen. Charles Schumer to explain that the funds would go directly to payroll. Thousands of airline workers used social media to urge lawmakers to approve the payroll guarantees.
“I was dialing for dollars,” she said. “We were calling everyone we possibly could.”
The format Nelson advocated for ended up in the successful Senate bill. It was latest battle for labor unions and workers, who have fought and won higher pay and benefits from companies that were enjoying record streaks of profits.
“The court of public opinion was making guarantees to the people who actually provided that service in that industry versus people who allocate capital in those industry,” said Bob Mann, an aviation analyst and former airline executive. “It came down in favor of the front line folks whose fault it wasn’t.”
Airlines for America, U.S. airlines’ lobbying group, changed its phrasing to say the $29 billion in grants would be exclusively for workers. In a desperate letter signed by airline CEOs to congressional leadership over the weekend it, warned: “Unless worker payroll protection grants are passed immediately, many of us will be forced to take draconian measures such as furloughs.”
Labor unions backed CEOs in jointly signed letters, including from American Airlines, which has had some of the most fraught relations with their workers’ unions, pleading for aid to save jobs.
The bill that passed the Senate included $25 billion in grants for passenger airlines and $4 billion for cargo airlines and $3 billion for airline contractors, like catering workers, in exchange for not furloughing workers through Sept. 30. It also would provide $25 billion in loans to passenger carriers, and $4 billion to cargo airlines, financing that would require them to refrain from stock buybacks and dividend payments. Accepting some of the aid will also allow the government to take equity stakes in carriers and require airlines to maintain some routes.
Thousands of airline contractors have already lost their jobs, according to their union, while one of big carriers’ regional contractors, Compass Airlines, said it is forced to shutter.
“Every worker is hurting right now,” said Joe DePete, president of the Air Line Pilots Association.
“This is not a bailout for shareholders,” wrote Cowen airline analyst Helane Becker. “In fact, calling it a bailout isn’t even correct. It’s a lifeline for employees.”
Dennis Tajer, spokesman for the Allied Pilots Association, which represents American’s some 15,000 pilots, said the payroll guarantees is a signal that taxpayers won’t allow airlines “to take advantage of this life vest we gave you.”
“This isn’t just for you to lounge in the ocean and get a suntan,” he said. “It’s incumbent upon all of us to respect taxpayers’ money.”
Travel demand in free fall
The plunge in air travel demand because of coronavirus, and harsh quarantine measures aimed to stop its spread, has put the jobs of the 750,000 people airlines employ on the line.
The Transportation Security Administration screened 203,858 people at U.S. airports on Thursday, down nearly 92% from a year ago, the TSA said Friday. The whiplash from the virus hit an industry that was on its most solid footing in decades and one that was racing to hire flight attendants, pilots and other workers just months ago.
Airlines are now scrambling to shrink their operations to only essential flights to save cash, in addition to other measures such as drawing down credit lines, freezing hiring, deferring aircraft orders and parking hundreds of planes. Even with the cuts, air travel demand is paltry.
The demand plunge and the disease has even forced executives to consider the possibility of a halt to U.S. domestic flights, CNBC reported earlier this month.
But for now, airlines are shrinking down to bare bones, with international networks looking the leanest in decades. American Airlines, for example, on Friday said it would cut its April capacity by 60% and by 80% in May to meet “record low customer demand.”
American’s CEO Doug Parker told employees in a video message that the airline is eligible for about $12 billion of the $50 billion in combined loans and grants for passenger carriers made available by the bill, which he said “will allow us to ride out even the worst of potential future scenarios.”
Executives, including Parker, have argued that it would take months for airlines to start up again if they would be forced to furlough workers. For example, depending on how long they are furloughed, pilots could need costly training to fly again.
Will it be enough
The unknown for airlines is when travel demand will return, and part of the uncertainty is
the overload of coronavirus cases in the U.S., which has now logged more COVID-19-positive individuals than anywhere in the world. That’s an issue facing not just airlines but other businesses desperate for lifelines.
The bill requires airlines only to commit to not furloughing workers through Sept. 30, for example, and it isn’t clear whether lucrative business travelers, whose employers are throwing ice on unnecessary trips, will return. A deep and protracted downturn means more unemployment, and fewer travelers to spend on annual vacations.
“Simply put, while legislation appears to be acceptable to our coverage universe when it comes to grants, we remain concerned that in the absence of second-half demand recovery, airlines could still come to find that court-supervised restructurings are necessary,” wrote JP Morgan airline analyst Jamie Baker. “Again, while [the] legislation removes that risk for now, equity upside potential is logically believed to be capped as investors await evidence of demand recovery.”
Airline executives themselves are digging in for a slow recovery.
One top airline official told CNBC he expects it will take at least two years to recover. And Ed Bastian, CEO of Delta told employees last week that second-quarter revenue would fall 80%, or $10 billion from a year earlier, saying: “It’s also clear, given the underlying damage the virus has created to the overall economy, that demand recovery will take an extended period once the virus is contained.”