The idea of German flagship carrier Lufthansa using a type of protection from creditors is not yet off the table, Reuters reported. Lufthansa was still considering the insolvency protection procedure as an alternative if a rescue package limited the company’s ability to compete too much. Under consideration is a type of creditor protection scheme which requires that a company is not yet insolvent and in which a company’s management can remain in place to execute the restructuring.
United Airlines Holdings Inc. said yesterday that it has cut its flight schedule by 90 percent in May and expects similar cuts for June as a result of the coronavirus pandemic, and warned that travel demand that is now “essentially at zero shows no sign of improving in the near term,” making job cuts likely, Reuters reported. Like other U.S. airlines, travel demand for Chicago-based United has cratered as most U.S. states have ordered residents to stay at home in order to contain spread of the coronavirus. United said that it flew less than 200,000 people in the first two weeks of April, a 97% drop from the more than 6 million people it flew during the same time in 2019. It expects to fly fewer people during the entire month of May than it did on a single day in May of last year, said Chief Executive Oscar Munoz and President Scott Kirby. “The historically severe economic impact of this crisis means even when travel demand starts to inch back, it likely will not bounce back quickly,” they said.
The U.S. Treasury Department said yesterday that major passenger airlines have agreed in principle to a $25 billion rescue package, ensuring airline workers have jobs until October while the industry battles its biggest-ever crisis, Reuters reported. Airlines are hopeful that U.S. passenger traffic, which has dropped by 95 percent due to the coronavirus pandemic, will begin to recover by October but have warned that the slowdown in air travel could extend into next year and even longer. It’s possible they will need another round of government bailouts to survive. Major carriers will receive 70 percent of the funds for payroll in cash assistance that will not need to be paid back, while smaller carriers receiving $100 million or less will not need to repay any funds. The six largest U.S. airlines — American Airlines Group Inc., United Airlines Holdings Inc., Delta Air Lines Inc., Southwest Airlines Co., JetBlue Airways Corp and Alaska Airlines — as well as four other airlines accepted the support, Treasury said. Agreements should be finalized soon and funds disbursed quickly, it said. Carriers were told they could apply for the total salaries and benefits paid in the second and third quarters of 2019, an amount that surpasses American Airlines’ current market value. Under the terms laid out by Treasury officials last week, the government would receive repayment on 30 percent of the funds awarded to large carriers and warrants equal to 10 percent of the loan amount that were priced at last week’s close.
The $2 trillion stimulus package passed last month included everything airlines requested, and some restrictions they find difficult to swallow, the Wall Street Journal reported. The aid offer includes $50 billion, half in direct payroll assistance and half in loans and loan guarantees. But the $25 billion to pay salaries and benefits this summer comes with more strings than the largest airlines were hoping for. Treasury Secretary Steven Mnuchin told chief executives on Friday that 30 percent of that money is to be repaid and that they will need to offer stock warrants on about 10 percent of the loan amount, which the government could convert to shares later. That surprised some airline industry officials who had believed the money would be in the form of grants. Airline executives spent the weekend discussing concerns with an industry trade group and seeking to negotiate adjustments to those conditions with the Treasury Department, federal officials and airline industry leaders said. “We’ve attempted to treat everyone equitably and do not intend to get into individual negotiations that would require changes across the methodology,” Brent McIntosh, the Treasury undersecretary for international affairs, said yesterday. Other conditions to the aid include a block on laying off workers or slashing salaries until October, and requirements that airlines maintain a certain level of service to the cities in their networks. They must also refrain from buying back shares or paying dividends, and agree to limits on executive compensation. Airlines haven’t raised objections to those requirements.
President Donald Trump said he may unveil a bailout proposal for the beleaguered U.S. airline industry by the weekend, Bloomberg News reported. The president said yesterday at a White House briefing that he met with Treasury Secretary Steven Mnuchin and Transportation Secretary Elaine Chao to work on details of the proposal. Airlines have been frustrated by delays in U.S. aid after being virtually shutdown by the coronavirus. Some of those carriers are depending on federal funds to meet payroll obligations next week and face the prospect of furloughing workers. Trump said he expected to offer “a very acceptable package” and may hold talks with the carriers. Treasury officials informed at least some carriers yesterday that it won’t provide funds until negotiations over conditions for grants are complete, and there will be no advance payments. The agency thinks it should complete some applications by the end of next week. The delay builds on the frustration of airlines that initially expected to receive funds earlier this week but instead were asked by federal officials for additional, detailed financial and operational data. Furloughing workers would render them ineligible for grants. The trade group representing large carriers, Airlines for America, said in a statement that the industry is projected to burn through $10 billion to $12 billion a month.
U.S. airlines’ desperate bid for $29 billion in government rescue cash is being frustrated by a lengthening process and demands that companies provide more detailed financial information, Bloomberg News reported. Carriers that filed April 3 for the grants intended to help meet payroll costs expected the checks to begin arriving days ago. Instead, U.S. Treasury officials have asked for another round of data that appears to be more related to a separate loan process instead of the cash grants, further delaying the relief. The federal stimulus bill provided for carriers to receive payments within 10 days after the law was signed March 27. That would have been Monday, though the legislation gave Treasury Secretary Steve Mnuchin discretion on the timing. The additional demand for information was so detailed it would take more than a week to review all the submissions. “Treasury’s preliminary guidance did not provide applicants with clear direction on a number of critical items,” two U.S. senators from Illinois, where United Airlines Holdings Inc. is based, wrote to Mnuchin in a letter Wednesday. Senator Tammy Duckworth and Senator Dick Durbin, both Democrats, called on the agency “to make sure the confusing application process doesn’t hamper the ability of applicants to receive the funds intended for them.”
The mayor of Alaska’s northernmost borough sought to seize some of the airplanes, hangars and equipment of bankrupt Ravn Air Group Inc. to ensure that remote communities continue to receive food, medicine and other goods, the Wall Street Journal reported. Though Alaska’s assistant attorney general said that the mayor didn’t have the authority to take the property, the mayor’s move surprised the airline and its lenders, which expressed concerns that other towns might use the same tactic. North Slope Borough Mayor Harry K. Brower Jr. on Sunday issued an emergency order seeking to commandeer the carrier’s local fleet and other assets, saying they have provided vital freight and passenger services to the borough’s roughly 9,000 permanent residents. The borough is nearly twice the size of New York state. His move came the same day that Anchorage-based Ravn filed for bankruptcy, saying it had run out of cash, grounded all 72 of its aircraft, and laid off virtually its entire 1,300-person workforce as revenue dried up due to the novel coronavirus. The North Slope government hasn’t seized any Ravn Air property, a spokeswoman for the airline said yesterday.
Alaska’s North Slope Borough government has moved to seize the assets of RavnAir Group after it declared bankruptcy due to the coronavirus, aiming to protect its region’s air service but also setting up a potential legal battle with the airline’s lender, Reuters reported. Ravn, Alaska’s largest regional carrier, filed for chapter 11 protection and halted operations on Sunday after running out of cash due to the plunge in travel caused by the pandemic, threatening service to remote regions like the North Slope Borough that do not have outside road access. In a seizure order on Sunday, North Slope Borough Mayor Harry Brower said his government, which serves a mostly Inupiat population, “must, in this time of disaster, ensure that its residents have food, medical supplies, and medical transport.” The area is roughly the size of Minnesota and has close to 10,000 residents. Assistant Alaska attorney general Rob Schmidt told Reuters that while the order was motivated by legitimate concerns, it was illegal and counterproductive because it has put in doubt the $12 million in bankruptcy financing that Ravn’s lender, BNP Paribas, had been prepared to give the company, with those assets as collateral.
Alaska’s Ravn Air Group Inc., an airline with more than 70 planes, has filed for bankruptcy, saying its business has dried up and it has run out of cash in the wake of the novel coronavirus, WSJ Pro Bankruptcy reported. The Anchorage-based carrier said that it applied for aid last week under the roughly $2 trillion stimulus package recently approved by Congress, but it is unsure whether or when it will get the financing. Government assistance will be key to helping Ravn Air resume operations and rehire the roughly 1,300 employees it has laid off as a result of the pandemic-related business interruptions, the company said on Sunday in a filing in U.S. Bankruptcy Court in Wilmington, Del. Formal documents are being finalized, but the regional carrier expects existing lenders including French bank BNP Paribas SA to provide $12 million in financing to help it get through bankruptcy. The company hasn’t ruled out ultimately selling the business or liquidating it, court papers said.
