US airlines teeter on financial abyss, apply for federal aid

Delta, the largest in the world by revenue and second-largest U.S. carrier by passenger count, last Saturday moved 38,000 customers versus a normal late-March Saturday of 600,000. JetBlue expects to fly 7,000 passengers per day in April and May, compared to 120,000 under normal circumstances. Instead of taking in $22 million per day, it has $1 million in revenue.

Airlines are cutting capacity to the bone, pleading with workers to take unpaid leave, eliminating noncritical expenses, postponing IT projects and other capital expenditures, slashing corporate salaries, renegotiating vendor contracts, and borrowing heavily in an effort to maintain liquidity until the coronavirus is contained and people start traveling again.

Delta says 30,000 workers have volunteered for short-term unpaid leave and that the company is now looking for volunteers to stay home for six, nine or 12 months.

“We are leaving no stone unturned,” JetBlue CEO Robin Hayes said. The New York-based carrier has reduced its April schedule by 70% and parked more than 100 aircraft.

Trying to plan for a recovery  is difficult for airline executives because they don’t know how long the economic quarantine of the U.S. and Europe will last.

“We continue to shrink our network as demand falls and will operate just enough flying to maintain essential services. This month our schedule will be at least 80 percent smaller than originally planned, with 115,000 flights cancelled,” Delta CEO Ed Bastian told employees. “I wish I could predict this would end soon, but the reality is we simply don’t know how long it will take before the virus is contained and customers are ready to fly again.”

United Airlines (NASDAQ: UAL), which has cut about 80% of its capacity for April, said it plans to regularly evaluate market conditions and cancel flights on a rolling 90-day basis until it sees signs of a recovery in demand. That, along with Delta’s announcement that it is giving passengers flexibility to make flight changes without a change fee, suggests that airlines anticipate a slow path to recovery.

Airlines say that without government assistance, or restructuring coupled with mass suspensions of workers, many of them could fail. The International Air Transport Association is calling for $200 billion in aid from governments as a bridge to economic recovery.

The Delta and JetBlue leaders said their companies on Friday submitted applications to the Treasury Department for their share of the worker-protection grants in the Coronavirus Aid, Relief and Economic Security (CARES) Act, which set aside $25 billion for passenger airlines and $4 billion for cargo airlines to cover payroll and benefits for workers at current levels.

An additional $29 billion, split the same way between passenger and cargo airlines, is available for loans and loan guarantees, but both types of aid come with conditions and airlines are weighing their options.

“Those funds alone are not nearly enough. We are expecting our revenue in the second quarter to be down 90 percent. Without the self-help actions we are taking to save costs and raise new financing, that money would be gone by June,” Bastian said.

Hayes said JetBlue is negotiating with the Treasury Department over terms for the payroll grants, and Bloomberg reported Southwest Airlines (NYSE: LUV) is in similar discussions.

Hayes cautioned employees that they may get less money than when the airline is flying at full capacity and “with fewer hours for everyone to work and far fewer flights, total pay is likely to go down for both salary and hourly crewmembers. The good news is this law keeps paychecks coming and it buys us time. Securing jobs, even at reduced total pay, is my priority right now.

“Even if we get the payroll support, we still need to raise additional money to pay our other operating expenses. We will be talking to the government and other lenders in the coming weeks. We have thoughtfully managed our finances over the past 10 years, and thankfully we now own many aircraft and other assets we can borrow money against,” Hayes said.

A conundrum for airlines is that they are required to provide a “reasonable” level of service across their domestic networks as a condition of accepting payroll support, but operating too many empty planes will bleed money from reserves. Defining what is “reasonable” is one of the issues airlines are trying to iron out with the government.

The Transport Workers Union of America, the Air Line Pilots Association and four other unions that represent nearly 400,000 workers urged Treasury Secretary Steve Mnuchin on Friday to require that any funds for preserving jobs that may be leftover when the program ends Sept. 30 be used to compensate workers for an extended period of time.

Although the CARES Act allows the government to take equity in companies that accept loans, the unions warned against making the terms too onerous.

“Any condition that would make a company prefer the bankruptcy process to government support or unduly discourage participation would undermine the goals of this economic stimulus. We urge the Department to keep this in mind as it negotiates with air carriers and contractors,” they said in a letter to Mnuchin.

In a virtual town hall with employees on Thursday, United CEO Oscar Munoz said the airline would consider applying for some of the government loans, The Points Guy blog reported. While American Airlines has indicated plans to retire more aircraft than previously planned, United President Scott Kirby said the airline has to carefully evaluate its fleet so it has the right number of aircraft to return to service as demand picks up. But the most likely candidate in such a scenario would be the Boeing 757.