Two Carriers Say They Will Seek Federal Aid

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first_publish_headline|Airline Stocks Steady as Southwest and American Say They Will Seek Federal Aid flow NWREGULAR flow|NWREGULAR codetype FLOW name Wires source MANUAL value NWREGULAR code NWREGULAR status modified flow Barrons.com flow|Barrons.com codetype FLOW name Barrons.com source MANUAL value Barrons.com code online status modified name Online title Product code Barrons.com flow Barrons Blogs flow|Barrons Blogs codetype FLOW source MANUAL title Product code Barrons_Blogs name Barrons Blogs value Barrons Blogs status modified headline Airline Stocks Steady as Southwest and American Say They Will Seek Federal Aid headline|Airline Stocks Steady as Southwest and American Say They Will Seek Federal Aid idx xf500 idx|xf500 codetype idx why about source FACTIVA code xf500 name Fortune 500 significance prominent fcode xf500 onlinesignificance prominent in i7501 in|i7501 codetype in why about source FACTIVA code i7501 name Passenger Airlines significance prominent fcode i7501 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Steady as Southwest and American Say They Will Seek Federal Aid Airline Stocks Steady as Southwest and American Say They Will Apply for Federal Aid

While a number of airlines appear to be chafing at some of the government’s conditions for aid, they may not have much choice. Southwest and American say they will apply for aid.

Two Carriers Say They Will Seek Federal Aid

The industry appears to be chafing at some of the government’s conditions for aid. But airlines may not have much choice

mailto:daren.fonda@barrons.com Airline Stocks Steady as Southwest and American Say They Will Seek Federal Aid By Daren Fonda Photograph by Jeff Swensen/Getty Images Jets parked on a runway at the Pittsburgh International Airport on March 27.

Airline stocks stabilized on Thursday—following a big selloff Wednesday-—as several carriers said they were drawing down credit facilities and would apply for federal aid.

Southwest Airlines (ticker: LUV) said in a filing on Thursday that it had drawn down $2.3 billion from its revolving credit line. Southwest said it still had $3.3 billion in borrowing facilities available after the drawdown. The carrier also said it planned to apply for federal aid, including payroll grants for employees.

And American Airlines (AAL) said on Wednesday that it had borrowed another $2.7 billion from three banks, leaving it with just $110 million in borrowing capacity under existing revolving credit lines. The airline has said it expects to tap $12 billion in federal aid to maintain operations.

The NYSE Arca Airline Index was flat in trading Thursday and is down 63% on the year.

Airline stocks bounced a bit after passage of the CARES Act, which included more than $50 billion in aid for airlines through a mix of grants, loans, and tax breaks. But the stocks have retreated as it has become clear that the aid will come with a variety of strings attached and terms that airlines find onerous.

Indeed, airlines appear to be chafing at some of the government’s conditions. Airlines want to coordinate some flights to maintain service to smaller cities—violating antitrust rules—but it is unclear if the Transportation Department will grant the waivers.

Low-cost carriers, such as Spirit Airlines (SAVE) and Frontier Airlines, meanwhile, want more flexibility to reduce service, pushing back against the government’s “continuation of service” obligations as a condition of aid. According to Transportation Department guidelines issued March 31, carriers receiving aid would have to “maintain minimum air services on a nationwide basis” based on schedules made before March 1, until Sept. 30.

An industry trade group filed comments saying that those terms would unfairly penalize low-cost carriers that routinely adjust their schedules for seasonal demand and would wind up flying near-empty planes under these conditions.

“The obligation effectively would require carriers to maintain a schedule developed for the peak winter travel season into the spring travel season and beyond,” the National Air Carrier Association said in a comment letter.

Airlines may not have much choice but to accept the government’s conditions. Analysts estimate that passenger carriers are running low on liquidity to maintain debt covenants and operations. And passenger traffic continues to decline. The number of travelers going through security checkpoints in the U.S. has plunged by 93%, compared with a year ago, going from more than 2 million travelers a day to just 146,000 on Tuesday, according to government data.

“Based on conversations with various appraisers, we believe that as much as half the world’s fleet is parked,” Cowen analyst Helane Becker wrote in a note published Thursday. “Many of these aircraft will never resume service,” she added, and the industry “will look very different when we get to the other side of this.”

Much of the industry’s equity has already been wiped out. Spirit now has a market cap of just $767 million. United Airlines Holdings (UAL) is down to $6.2 billion, while American is at $4.5 billion. Southwest—the financially healthiest major airline—has also become the largest carrier by market cap, worth $16.3 billion, followed by Delta Air Lines (DAL) at $15.2 billion.

Once the crisis ends, Becker expects the world’s airline fleet to be smaller, younger, and more fuel-efficient. Many larger planes used for long-haul service may never come back. At least 158 Airbus A380s—the world’s largest passenger plane—are parked and “most will never fly again,” Becker writes. American is retiring its fleet of 767 aircraft and accelerating the phaseout of its 757 fleet; the airline said Sunday that it plans to phase out other aircraft too.

Presumably, the government will ease up on some restrictions for aid to keep the industry aloft with at least some service over the next few months. What happens after that is anyone’s guess.

Write to Daren Fonda at daren.fonda@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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