The US Government's $25 Billion Airline Aid Agreement

The US Government's $25 Billion Airline Aid Agreement

almost 4 years ago2 mins

The US government agreed to give US airlines a $25 billion support package this week, in hopes it’d keep them aloft until their runways are cleared of coronavirus-shaped obstacles 🛫

What does this mean?

American Airlines will get just shy of $6 billion in US government support, while rival Delta Air Lines will receive $5 billion. The idea is that the cash – together with their own cost cuts – will see them through and help protect their employees till around September, by which time airlines are hoping the current travel halt will have been lifted 🤞

Allocation of $25 billion payroll support for US airlines | Forbes
Allocation of $25 billion payroll support for US airlines | Forbes

The government’s help does come with strings attached, mind you. For one, major airlines will have to repay some of the cash – though admittedly with a low interest rate. For another, the government will take “warrants” in the airlines – which means it’s going to benefit from future rises in their share prices for a while.

Source: The Wall Street Journal
Source: The Wall Street Journal

Why should I care?

Airline companies’ shares climbed early on Wednesday: American Airlines’ initially by 10%, and Delta’s and Southwest’s by 7% apiece 📈 Investors might’ve fancied their stocks for a couple of reasons. First, the aid agreement has now made the immediate future of those airlines slightly more certain. And second, now that the US government effectively has a stake in several airlines, it might be more willing to offer extra support to the industry if coronavirus disruptions last longer than everyone expects.

Source: The Wall Street Journal
Source: The Wall Street Journal

Airlines elsewhere in the world haven’t been quite so fortunate 🌎 Not yet, at least: the French government said it’d help support Air France-KLM in the next few days. Depending on the terms, of course, the potential announcement could give the national carrier’s stock a boost. Norwegian Air’s plan to convert its debt into company shares, meanwhile, might help keep it from crashing like the near-bankrupt South African Airlines.

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