Airlines Will Have To Repay More Government Aid Than Expected

Filed Under: Unions

I’m not sure where exactly this falls on the spectrum of “fair enough, I guess that’s not what they were promised” to “talk about looking a gift horse in the mouth.”

Airlines will have to repay some payroll aid

The US government is providing US airlines with a total of $50 billion in aid, as part of the CARES Act.

About half of that was supposed to come in the form of loans, and the other half was supposed to come in the form of grants to cover payroll for employees in the industry.

Well, on Friday US Treasury Secretary Steven Mnuchin told airlines that he wants them to repay some of the $25 billion in payroll grants. The suggestion is that for airlines getting more than $100 million in assistance, 30% of the payroll grants would have to be repaid in the form of low-interest loans.

In other words, of that $25 billion in payroll aid, $17.5 billion would be grants, and the other $7.5 billion would be loans.

Airlines would offer warrants, with the interest rates rising over time if repayment doesn’t occur.  The warrants (which would allow the government to buy stocks at a pre-set price and time) would be equal to 10% of the loan amount.

The industry isn’t happy about this

There’s a lot of frustration in the industry with this revelation. Not surprisingly, airline executives aren’t happy, with one airline executive saying “this is not what Congress approved, the aid was supposed to be $25 billion in cash grants and $25 billion in loans.”

Fair enough, because on some level it does seem like a bait-and-switch, and I can see where the frustration is coming from.

Perhaps what’s more interesting is the anger among airline unions, as they’re making some pretty drastic claims based on this development.

Sara Nelson, the President of the AFA-CWA (a flight attendant union representing many airlines), has claimed that “this will lead to airline bankruptcies,” and that “the Treasury Department is destabilizing the industry, not helping save it.”

Meanwhile a representative for ALPA (a pilot union) said that the organization “is very concerned that the US Treasury is threatening the jobs of pilots and other aviation workers by treating grants for airlines like loans,” also saying “this will hurt workers now and in the future, and slow the recovery the CARES Act was meant to facilitate.”


I can totally appreciate if this isn’t what was supposed to be passed as part of the CARES Act. That’s not cool.

At the same time, when you step back, the outrage here seems out of touch. Even with this, the US airline industry is getting $17.5 billion in grants, and $32.5 billion in low interest loans.

Is this really what we would call “destabilizing the industry, not helping save it?” Will this $7.5 billion really be what leads to airline bankruptcies? That’s $7.5 billion spread out across a dozen airlines, when that amount is only a bit more than US airlines collect in baggage fees every year.

Is that money going back to taxpayers really a bad thing?

Odd management & union dynamics

Perhaps what has been most interesting throughout all of this has been the dynamic between airline management and unions.

Under normal circumstances, unions spend most of their time fighting against management (largely for legitimate reasons). But in light of the current situation they’re working together towards a common purpose.

Fair enough on the surface, though I think the issue is that there has been a complete lack of acknowledgement about how actions by airline management have gotten us into this situation.

There’s also a lack of acknowledgement of the policies that the airline industry has instituted over the past many years that have caused consumers (and taxpayers) to take little sympathy on the industry.

I can appreciate airline employees are concerned about their livelihood, as are so many Americans. But does the CARES Act really tackle that comprehensively? Payroll is covered for employees through the end of September, but then what?

A vast majority of people agree demand won’t fully recover, so will they be looking for more aid then, or what’s the plan?

Bottom line

Apparently 30% of the $25 billion in payroll grants will now actually be loans. And the most powerful flight attendant in the world is arguing that the need for mega-airlines to collectively repay a total of $7.5 billion will lead to airline bankruptcy, and to the industry being destabilized even more.

Color me skeptical.

On the other end of the spectrum, you have this guy…

  1. The only equitable solution would have been letting them crash and burn while the government picked up the tab for payroll up to USD50,000/year per employee for, say, 6 months + securing pensions.

    This would have accomplished a lot of things:

    – Corrupt and inept management lose their jobs
    – Shareholders get wiped out (instead of the employees)
    – Install fiscal discipline going forward instead of encouraging no-risk greed

    Yes, yes, some of you will say ‘bUt wE NEeD aIRlInEs’. Yes, we do. And that’s exactly why new ones will spring up the second the old ones go under.

    Don’t use a public welfare argument to cover the fact you’re really just worried about your ‘elite’ status and stockpile of credit card miles. It’s not the government’s job to save these for you.

  2. God forbid they pay SOME of it back. At least the banks paid their bailout back with interest!

  3. For those of you saying that new airlines will “spring up” the second UA, AA, etc. go out of business…

    Do you have ANY IDEA what it takes to start an airline from scratch in the US? Any?

    Of course, if you’re also advocating for eliminating the FAA, DOT, NTSB then maybe you’re on to something.

  4. >Do you have ANY IDEA what it takes to start an airline from scratch in the US? Any?

    People, Capital, Licensing. Let’s see:

    – People? Check. This one is obvious.
    – Capital? Check. The planes are already there.
    – Licensing? Nobody is flying, so the FAA/DOT/NTSB has less to do while management of the new airlines ALSO have no day-to-day to worry about. It’s almost like a miracle, huh?

    This isn’t a problem, Jason. I suspect we’re in the “let’s find arguments so I can keep my stockpile of credit card miles” area of arguments … again.

  5. This isn’t a bait-and-switch. Under the CARES Act, Treasury was authorized to take equity stakes in airlines in exchange for the grants. The airlines complained about that, so now Mnuchin is giving them an alternative — pay back the money instead of giving up equity. The airlines are complaining because they want free money and Mnuchin is smart enough not to let that happen.

  6. Look I’m totally against the bailout. In any form. So for that I agree with Chamath.


    This is an act passed by Congress and signed by the president. The treasury secretary shouldn’t after the fact try to sell another bill of goods.

    I understand the airlines gripe but if I had it my way, they would be using the bankruptcy courts.

  7. @Eric – it isn’t. If the airlines agreed to equity stakes which I assume they did by groveling and accepting the money who gives a crap what they think.

    This is a legal document. There is no need to renegotiate it. I get what Mnuchin is trying to do here and I agree with him.

    I do think it’s odd that this is coming up after the fact.

  8. I agree with Chamath. Had the airlines not been bailed out, they’d have just gone through another cycle of Chapter 11 and the people “hurt” would have been the same shareholders who encouraged the reckless share buybacks. None of the majors would have stopped flying.

  9. Singapore Airlines is raising about the equivalent of $10 Billion US privately. Perhaps a good example of what can be done outside of government and outside of bankruptcy.

  10. In my view, stock ownership, i.e. nationalization, would be the way to go. There are numerous examples of airlines, which successfully recovered as state owned enterprises and were subsequently reprivatized (e.g. Air New Zealand I). Others are still successful with and will be reprivatized (e.g. Air New Zealand II, Air Baltic).

    There are numerous studies in the aftermath of the GFC in 2008 which show that “nationalization & reprivatization” is the most successful intervention, even from a taxpayer’s perspective. In contrast, grants are lost money on day one and loans are often later written off.

  11. I’m with Chamath!

    Yes, bankruptcy, wipe out equity holders and let the airlines reconstitute with new management and likely 95% of the same employees, brands, aircraft, and other infrastructure.

  12. See, @Matt Fortini, that’s the difference between you and I.

    I am actually in the aviation business and have worked on several large operational projects including starting an airline from scratch.

    The flippancy with which you think starting a new airlines can be achieved (“check!”) means you aren’t serious nor do you have any understanding what it takes.

  13. Chamath has a good point but is wrong in the pathing of his view because US airlines by themselves are not in imminent danger of bankruptcy – rather they are on a pathway to it because of the drastically changed calculus of revenue versus expenditures versus liquidity.

    Fiduciary duties by management requires them to act in the best interests of the entity in question. Idled airline employees will be immediately furloughed or laid off en masse. Supporting and adjacent industries will be furloughed or laid off en masse – including in the travel blogosphere. This has already been done in the non-essential retail industry and no one is complaining.

    There’s merit to the idea that airlines should have saved more for a rainy day, but ultimately all entities would face failure if revenue remained at zero but expenses did not.

    If we are ok with that as a society let’s go for it, but let’s also be clear on the consequences.

  14. Good for you, @Jason.

    I advise many types of companies for a living, and nowhere do I find as incompetent management as in aviation, not to mention employee groups fully stuck in the 90s. Top it off with catty snark (thanks for the great example) and a serious attitude problem towards the paying customer and you’ve got a problem on your hands.

    In general, you can find people unable to imagine a different tomorrow anywhere. It’s hardly the average working American taxpayer’s problem that aviation employees simply cannot fathom the idea that a new entrant in the market could arise from the ashes of the likes of AA and UA.

    The American people really shouldn’t be on the hook for this sad state of entrepreneurial capital in aviation.

    Now, let’s go back to talking about planes (oh wait, Boeing hasn’t made any innovations in over a decade, but at least the 787 is just lazily built unlike the 737MAX that literally kills pax). Let’s try airlines … oh, cost-cutting and M&A as the answer to everything. Also not entrepreneurial in the least. How about the framework? Right, dilapidated airports and crumbling infrastructure.

    Awesome! Now go on, lecture me more about innovation and imagining new things with your aviation background. I can’t wait.

  15. Read this bill. This is completely within the scope of the law and the Treasury Secretary is doing exactly what his job is here, which is to try and get the best deal for the taxpayers. Airlines didn’t want to give up equity so he is offering them loans. No airline has to take the deal, they are welcome to go raise money elsewhere. I am certain they will not find a deal where they get $25 billion and only have to pay back $7.5.

  16. I’m with @Matt Fortini, these yuge companies didn’t give a s&$t about the consumer, they made crazy rules how to tremple on the little guy, there was no heart when they dealt with me when I went through hardship, in addition they used stock buy backs and gave bonuses when they hadn’t put away to weather a storm!

    Why does @omatt know they have to have stock pile money, for the business and for themselves in order to survive, but these corporations don’t? Where is our free market? Why should the government/WE bail out a reckless and ruthless company?

    Does anyone really believe that there won’t be airlines to fly if we let them fail?? I believe in the free market! And As long there is a need there will be someone providing the service maybe with a better business plan, maybe a company with heart!

  17. Good for Mnuchin. The bailout is MUCH too easy on the airlines. Why aren’t the taxpayers getting any stock or other equity in the airlines for our billions to share the long-term rewards for their survival? Every dollar of equity that we fail to get is another dollar of taxes on the middle class down the road.

  18. I didn’t know who this guys was (Chamath Palihapitiya) but he has a solid argument. I think people think of bankruptcy as black/white thing but I am sure government can let the stock holders lose their investments but keep the people in the industry as least for 6 months. that is certainly better than 6m people who lost their job. Either way, investors knew there is a risk when they invested, now a rare situation occurred, so what? It should have been within their risk assessment.

  19. @Matt Fortini “How about the framework? Right, dilapidated airports and crumbling infrastructure.”

    Aaaaand right there you’ve told me that you know nothing because if you did, you’d understand the complexity of trying to run a business in a complex, government controlled environment.

    Who owns the airports in the US? How about globally?

    Who owns the airspace?

    Who does security?

    How many different domestic and foreign entities are required for an airline to operate or even exist?

    And by the way…the consumer has proven time and time again that they won’t pay for the champagne and caviar service that they think they deserve.

  20. Part of the reason for this is the need to protect US traffic rights under various Open Skies agreements. If the amount is 100% grants, that can easily be construed as anti-competitive subsidies and cause problems for US carriers operating abroad, especially since the US has been very vocal in their condemnation of similar aid from foreign governments to their respective carriers.

  21. Jason is 100% right. The invisible hand of the market will not magically create new airlines if the current ones fail. The economies of scale they function at cannot simply be spun up from the ground and offer anything close to the flight coverage we have now.

    As always, I get the desire to stick it to the C-suite, but if 2008 taught us anything, it’s that they always design things to make sure they’re taken care of first, even in bankruptcy. Letting the airlines fail will only give US fliers a significantly worse product with fewer options at higher costs if we return to the small “regional airline” model.

  22. I can’t believe a VC like Chamath Palihapitiya would even think or say something like that.
    Unless he has investment positions that benefits from no airlines or less travelling, such as Slack. OOPS!!!!!!!!!!!

    That is why Wall Street and these funds are full of $h..t.

    Now what Chamath say isn’t entirely wrong but not correct either. Did he even look at the past Chapter 11 of airlines. We had a lot of examples after 9/11. Yes the company doesn’t close it’s doors right away. Their pensions are safe. The employees didn’t get wiped out. NOT!!!!
    What is the value of their pension in a bad economy.
    How many jobs were lost from those Chapter 11. How long it took them to get a new job.

    Now for the package part.
    As a stakeholder (employees or equity), I will not like it.
    But as a person in this economy, I think it is quite fair. This is helping but not really give a free escape. The warrant part also punishes equity holders a bit too. It also would make a stock buyback less appealing as you will be repaying Uncle Sam too not just Uncle Doug.

  23. Jason, you really need to calm down. This is a productive discussion, but we can’t have it with your attitude.

    The ownership structure in US airports exacerbate the inherent agency problem in infrastructure maintenance when the public provides a framework for private business like this. Many European airports are privately owned.

    But we can’t have this discussion if your starting point is, literally, that you’re smarter than everyone else because you know who pays for airport security. Sorry bud, but the finger points right back at ya.

  24. Why Airlines are getting so much grants? Let them go bankrupt and someone will buy them out and rehire the same employees. Airlines CEO are corrupted, making so much money and continue to squeeze customers for more and put it in the shareholders and CEO’s pockets… seat selection/cancel or change/baggage fees are expensive, overselling seats is ridiculous, customers paid for seats aren’t guarantee.

  25. @Jose

    If I am someone who buys a bankrupt airline, I will NEVER rehire most of the same employees.
    I can start clean by not having unions (bye bye rehires), not paying for seniority (bye bye 30 years of service), yes I might have to retain some, but most will not.
    I can always break up the company and sell its assets, airline wasn’t and will never be a sustainable business.
    I would also hold short of accusing CEOs being corrupted.

    Now do you understand what too big to fail is?

    BTW, anyone thinking of returning their $1200 check?

  26. At one point in the last two weeks, the market cap of the top 5-6 airlines was far less than $50 billion. Simply buying them, fixing their problems and IPO’ing them (as maybe 3-4 arilines) could save more jobs in the long run (United has already said they plan to layoff employees Sept 1) and possibly give the US taxpayers a nice return.

  27. The whole thing is that if airlines furlough people, it costs a lot of money to furlough and to hire people back and retrain. It will severely cripple an airlines ability to bounce back. As much as everyone is against airlines, smaller markets will be cut and probably left without service while airlines will have a whole lot limited options for customers. America has no great infrastructure in the US outside the northeast with Amtrak. The lifeblood of economic development for most communities in America is air service. This could hurt small to medium size cities way beyond than just sticking to the original terms. But when you have an administration that is business focused rather than public service focused, there will be winners and losers. Air service is considered an essential service to all of America and if massive furloughs and massive downsizing happens, the economic divide for recovery will be extremely bleak.

  28. They’re long-held multi billion $$ business. And if they are so short sighted to keep a hefty rainy day fund don’t think they have the upper hand in this negotiation.

    I think they should have to repay all grants with interest. I don’t pay my taxes so a $300k per year senior pilot can collect a hefty check for doing next to nothing for the next several months. That’s what this amounts too.

  29. I think it unfair that many people now are not working and that pilots and flight crews are expecting close to full pay. Wake up!!
    I feel no simpathy for the airlines as they have treated us (me) quite poorly over the last few years. We just bailed out just a few years ago, now it is back to the trough.
    Perhaps we let them all fail and perhaps the new airline will offer better services. Time that we have some new blood in the industry where we are treated like customers and not as cattle.
    Let them fail!
    ( 6 times AA EXP, 2 times UA 100K, DL (Million miler) .
    Hey PARKER Thanks for the great seats!!.. I remember when AA had “more room throughout coach”
    And thanks to the big three for devaluing my miles !.

  30. While I too feel some measure of “good for you” and take some amount of pleasure in their current state of affairs, I can’t overlook the fact that allowing them (absent some form of state aid) to go bankrupt or the like, to me doesn’t end up being a good deal for the public in the longer term.

    I agree that IF (and that’s a big IF) a major carrier were to go bankrupt (and that’s flat out bankrupt not restructure) I myself think it’s low odds that any successor would choose to pick up former employees at their then-union negotiated wage/work rule scale, honor seniority or anything like that… from a purely economic point of view- why would any new start up want to do that?

    I remember the days of the National Airlines, People Express, Morris Air, Kiwi, etc… yeah, it was great to be able to fly West Palm Beach to New York for like $69 or from Seattle to Portland for less than $50.. but.. I’m not so sure that this level of carrier capacity will lead to a viable, long term business model that produces sufficient return to attract the needed private equity to sustain a lasting and growing model/industry.

    In the end, for as much distain I may have for US carriers, I just don’t think it’s a good move for the general public and the larger economy as a whole to let one or more legacy carriers, each with their 10s of thousands of direct employees who earn fairly middle wages/benefits packages (Yes, I know that not all airline workers are middle class, but I do think a fair percentage do enjoy a wage/benefit package that puts them into some form of “middle class” so to speak) go away.

    I do want the US government to be a good steward and exercise strong fiduciary processes to insure that the taxpayer gets the best deal they can.. but..

    and finally, I agree that there’s more to the picture than just the airlines – there’s all the infrastructure; some public and some private – that are also an integral and indispensable part as well.. so they’ll have to be factored into any solution that seems long term success.

  31. Stupid airlines got used to the idea of taking money and not providing value. Good on Mnuchin/Trump to use common sense. They/we should expect a return for every penny loaned to these sharks. Get equity and/or a claim on future profits. Stop making meritless arguments about why taxpayers who are working hard and fighting to survive must donate money to airline employees.

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