The spread of COVID-19 in the U.S. in March and April and the cratering of worldwide demand for air travel resulted in the U.S. Congress passing the CARES Act, which provided $58 billion in subsidies for commercial aviation including $25 billion in payroll support for airlines. Airlines taking the money agreed to avoid involuntary job losses for employees and maintain their pay rates through September 30. The expectation was that by October 1 the country would have the virus under control and travel would be back to normal. Boy, were they wrong about that!
As detailed in a previous post, the Coronavirus Aid, Relief and Economic Security Act (CARES) is a $2.2 trillion stimulus and relief package designed to mitigate economic losses to US businesses resulting from the ongoing COVID-19 pandemic. CARES became effective on March 27, 2020. Air carriers and contractors are in line to receive up to $61 billion of those funds. CARES became effective on March 27, 2020. Under CARES, airlines and air carriers are eligible for:
- $25 billion in grants for passenger airlines
- $4 billion in grants for cargo carriers
- $3 billion in grants for airline contractors like caterers
- $25 billion in loans for passenger airlines to cover losses due to the COVID-19
- $4 billion in loans for cargo airlines to cover losses due to COVID-19
Congress’ intent was to shield employees from financial losses due to sudden and unexpected reduction in the demand for air travel and to avoid a wave of airline bankruptcies. U.S. airlines accepted CARES assistance and have refrained from laying off employees. But they figured out other ways to game the law. Airlines furloughed some workers before taking the money, required some to take unpaid leaves, and reduced employee hours of work while still taking the money and avoiding violating the law.
The Worker Adjustment and Retraining Notification (WARN) Act requires employers to give employees 60-days’ notice of mass layoffs. Employers that fail to provide 60-days’ notice may be liable for paying employees back pay and benefits for the violation period.
Accordingly, on July 15, 2020, American Airlines informed employees that it will notify 25,000 frontline employees of possible furloughs and layoffs, nearly 20% of the company’s workforce of 130,000. The announcement sated that revenue was down 80% in June (which it believes is better than others in the industry) and that demand for air travel is slowing again. As a result, it was preparing to slim down staff once government payroll subsidies run out October 1.
The same day, United Airlines announced that it was notifying 36,000 frontline employees of potential furloughs and layoffs, representing about 38% of the company’s workforce of 95,000.
On July 16, 2020, Delta Air Lines, while not providing WARN notices immediately, said it is still overstaffed even though 17,000 employees are taking buyouts and early retirements. In March, Delta cut the pay and hours of many workers by 25% and is continuing that through September 30.
The Real Message of Airline WARN Notices And Announcements
With their recent staffing announcements, airlines are sending a message to Congress as well as employees. American’s notice to employees states in part:
[I]t’s worth noting that each of our unions has expressed support for legislation that would extend the Payroll Support Program funding for six months in light of the much longer impact of the pandemic than was anticipated when the CARES Act was enacted. As currently proposed, the effect of this legislation would be to delay any involuntary furloughs until March 31, 2021, at which point there would most certainly be more demand for air travel, and along with that demand, much less need for involuntary furloughs throughout the industry.
This is a union-led initiative across our industry, but American is supportive of any legislation that would protect our team’s jobs during these extraordinary times. If you are interested in supporting these legislative efforts, we recommend that you work with your union leaders to ensure your voice is heard. That an extension of the Payroll Support Program is being considered illustrates the incredibly important work all of you do every day across our country and globe. Notably each direct airline job supports 13 additional jobs that support our aviation infrastructure and industry.
Interestingly, while noting that the impact of COVID-19 has lasted much longer than was anticipated when CARES was enacted, American offers some assurance that just one more bailout is needed because it predicts that by March 31, 2021, there would “most certainly” be greater demand for air travel. Hmm!
Bailout After Bailout Isn’t The Answer
Lobbyists for the airlines and their unions are hard at work trying to convince legislators of the merits of giving more taxpayer money to airlines that a few months ago were making money hand over fist and using profits to buy back stock to increase earnings per share and reduce dividend expense.
Airline financial viability should not be guaranteed by the government. Airline losses should be borne by shareholders and bondholders instead of John Q. Public. Bankruptcy is an option all major U.S. airlines have relied on previously, some more than once. Bankrupt airlines usually remain in operation while they reorganize with employment levels suitable to the requirements of the business. Some airlines have used bankruptcy as a means of rejecting and effecting unilateral modifications in labor agreements.
A government-funded bailout transfers airline financial losses from investors to taxpayers. That seems unfair because investors assumed a risk of loss when they invested and many of the wealthiest individuals and businesses pay no tax. Increasing the national debt increases the burden on the average taxpayer and adds to the pressure to cut funding for needed social programs.
Lack of demand due to COVID-19 leaves airlines with more employees than is necessary to operate the business. Job losses are always regrettable and should be a last resort for companies, but it makes little sense for the federal government to pay airlines to retain employees who have no work to do. Regrettably, there is no end in sight for that sad state of affairs.
The best way to protect airline employment levels and finances is simply to beat the virus! Ending the pandemic solves all of the problems with the economy and public health. That is where government efforts and resources should be directed. Reducing spread to manageable levels doesn’t require a vaccine or head immunity. In countries like South Korea, Taiwan, and Vietnam, Covid-19 has been all but eradicated. There is no magic to it. Those countries buckled down and did basic pandemic blocking and tackling of adequate testing and contact tracing, social distancing, economic shutdowns of sufficient duration, wearing masks, etc..
Do you think the government should offer airlines another bailout when the first one expires?