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Is Second Stimulus On the Way to Rescue US Airlines?

U.S. airlines have been warning of massive job cuts given the approaching expiration of the federal aid on Sep 30, 2020. Thanks to coronavirus, airlines are struggling to stay afloat in a significantly suppressed demand environment.

In April, U.S. airlines received $25 billion in payroll grants under the Coronavirus Aid, Relief and Economic Security (CARES) Act. Airline companies accepting this financial assistance are prohibited from laying off employees through Sep 30. This package was meant to provide some support to airline companies until they somewhat bounce back.

However, with coronavirus concerns continuing unabated, a recovery in air travel demand seems to be a distant possibility and this does not bode well for the aviation industry.  Considering this, the U.S. airlines and the labor unions have requested for a six-month extension of the payroll-support program to protect jobs through March 2021. Despite garnering immense bipartisan support to the extension on grounds that saving jobs in these trying times would mean that the economy would bounce back faster, an agreement hasn’t been reached as yet. So airlines are preparing for the worst.

Airlines’ Planned Job Cuts to Shrink Operations

Given the continued softness in travel demand, airlines started pondering over operating on a much smaller scale in the foreseeable future. This would mean reducing workforce and aligning network to match the current demand scenario.

Recently, American Airlines Group AAL, carrying a Zacks Rank #3 (Hold), revealed that it will have to furlough approximately 19,000 of its employees in October unless the payroll-support program is extended. Of the 19,000 job cuts, 17,500 will impact U.S.-based employees. On the whole, the company’s total workforce (pre-coronavirus levels) will be slashed by 40,000 employees in October. This large number of furloughs has been planned despite thousands of employees having opted for voluntary-separation options. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earlier, Delta Air Lines DAL had grabbed headlines for similar reasons. The carrier plans to furlough 1,941 pilots in October, which could have been avoided if they had agreed to a 15% cut to their minimum pays. Back in July, United Airlines UAL had alerted 36,000 workers about likely furloughs in October. The company is yet to reveal the final number of redundancies.

However, on a positive note, Southwest Airlines LUV hopes to be able to avoid involuntary actions through the end of this year, thanks to a sufficient number of employees having opted for voluntary-severance packages. Meanwhile, several pilots at Spirit Airlines SAVE have agreed to work fewer hours every month to prevent 600 job cuts in October.

The plight of airlines is well reflected in the industry’s price performance over the past six months. In this period, the industry declined 27.5%, while the broader sector and the S&P 500 index appreciated 15.5% and 15.6%, respectively.

 

Is an Extension in Payroll Support Program Likely?

Discussions between the White House and Congress over a broader coronavirus assistance package had stalled. But talks have started again and are on positive track.

At an event hosted by Politico on Wednesday, White House Chief of Staff Mark Meadows reportedly stated that President Donald Trump is considering executive actions to help airlines avoid furloughs in case the Congress fails to provide aid through a new round of stimulus.

Per Meadows, “If Congress is not going to work, this President is going to get to work and solve some problems. So hopefully we can help out the airlines and keep some of those employees from being furloughed.”

He said that the assistance would need another legislative package. But the White House is “looking at other executive actions” and expects to apply “a few” additional stimulus measures in addition to the executive order signed by Trump in July.

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Southwest Airlines Co. (LUV): Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL): Free Stock Analysis Report
 
American Airlines Group Inc. (AAL): Free Stock Analysis Report
 
Spirit Airlines, Inc. (SAVE): Free Stock Analysis Report
 
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