$50 Billion Request For The Airlines

The airlines are critical to virtually everyone in society, including real estate investors. So today we’re talking about the airline industry. I’ve traveled extensively over the years for business and pleasure. Despite the recommendations from government to reduce travel,

There are currently 90,000 passengers on cruise ships around the world whose fate is uncertain when their cruises end. Even once they’re back on land, the reality of flights home may be far different than when they boarded the ship.

Most airlines have already announced massive reductions in capacity in recent days. Many international routes have been cut by 85%, in some cases 100%. Domestic routes have been cut by anywhere from 10% to 50%.

Westjet flight attendants union announced that they expect layoffs of 50% of the airline’s staff in the coming weeks.

So far a consortium of airlines Industry trade group Airlines for America, or A4A, have asked the US Federal government for an aid package of $50 billion. This is a combination of loans, loan guarantees, and grants. The trade group argued that roughly half of the proposed assistance—$25 billion—should come in the form of direct grants to airlines. The proposal also outlines a $25 billion program in which the Federal Reserve would purchase financial instruments from, or provide interest-free loans or loan guarantees to, the carriers.

United Airlines alone estimating its revenue would be down $1.5 billion in March from a year ago. United Airlines cancelled their new pilot training program, but Air Canada is looking past the current business interruption and continuing to hire and train pilots.

A4A, also proposed $8 billion in grants and guarantees for cargo carriers. U.S. airports are separately seeking $10 billion in assistance to counter forecast full-year losses already approaching $9 billion. The airports collect their revenue through landing fees that are charged to each passenger as a supplement to their airfare. This pays for the operation of the airport and the debt due on any airport improvements.

In a matter of days, American Airlines managed to reach an agreement with its pilots union. These negotiations typically take months of dialog and the can gets kicked down the road many times.

When this downturn ends, the airlines will need to spin up to capacity very quickly. But in order to do that, pilots need to remain current. They need to complete at least 3 landings as pilot in command in the past 90 days. They also need to remain current on their medical and any flight tests. When a pilot is qualified to fly, they are certified on a single aircraft and only that single aircraft. You’re not going to have a Airbus A320 pilot all of a sudden switch to a Boeing 787. That’s a completely different equipment rating. You can do all of this work in the simulator.

The big question is how long is this disruption going to last? Like we said on yesterday’s show, is this an economic blizzard or an economic winter?

Some estimates I’ve seen have suggested that if the lockdowns we are seeing in the economy are successful in slowing the spread of Covid-19, the time that will be required to limit the spread through the population will be extended. That means possibly an extended period of reduced social contact, and therefore an extended period of economic slowdown.

Will the airlines undergo a substantial long term shrinkage in the industry as a result?

The White House has been clear that maintaining the airline industry is a priority as a matter of national security. Some lawmakers have opposed the bailout saying that protecting workers is a priority above protecting corporations. Perhaps those elected officials don’t realize that the path to paying workers is through the companies, without which there is no employment.