Airlines finally get their $25B bailout — now you (kind of) own 10 airlines

Thursday, April 16, 2020 by Robinhood Snacks |
"_Let's get this bailout_"

"Let's get this bailout"

The "B" word has been thrown around a lot... But now airlines are finally getting their Big B: a $25B bailout from the US government. 10 airlines — including Delta, United, and JetBlue — will share the $25B to pay their hundreds of thousands of employees. Here's what this bailout looks like:

  • 70% grants (aka, free money): The airlines won't have to repay this. By taking the money, airlines are agreeing not to layoff workers until at least September, which means the gov doesn't have to spend taxpayer money on unemployment checks for them — instead it gets to continue collecting income tax on those paychecks.
  • 30% loans: 30% of the package will have to be repaid over 10 years. Airlines wanted only grants (duh) and the gov wanted loans, so this is a compromise.
  • The Treasury also gets stock in the airlines, so Americans collectively (kind of) own around 1% of those companies.

Many (or all) airlines would likely go bankrupt... Without this bailout, that is. That's why it was a key part of the $2.2T stimulus package. With near-zero travel demand and high fixed expenses, airlines are quickly burning through the small cash cushions they have:

  • 96% of the cash generated from airlines' profits over the last decade was returned back to shareholders through dividends and stock-boosting buybacks — now airlines won't be allowed to do buybacks until September 2021.
  • In February, Delta generously dished out $1.6B (or 33% of its 2019 profit) in bonuses to employees. But now, passenger volume for airlines in the US is down 95% from a year ago — airlines are expected to lose $314B this year in global sales.

It's not necessarily bailout or bust... Even when airlines go bankrupt (no bailout), they can bounce back — 66 American airlines have gone bankrupt since 2000, including United Airlines in 2002 and Delta in 2005. But bankruptcy is a big hit to investors, since the stocks usually go to zero. If airline employees lost their jobs, the government would have to pay unemployment benefits — so it's shelling out $$$ either way.