U.S. airline stocks see massive boost as US$32bn bailout nears approval

©Delta Air Lines parked aircraft

U.S. airline stocks surged as U.S. lawmakers came much closer to agreeing up to US$32 billion in grants, as opposed to loans, for passenger and cargo airlines, together with associated contractors. Shares in American Airlines Group Inc rose 35% to $13.90, Delta Air Lines increased 22%, United Airlines went up 25% and JetBlue Airways Corp increased by 30%.

The total amount of the aid will be divided up along the lines of an expected US$25 billion for airlines, US$4 billion for cargo carriers, and US$3 billion for contractors, such as caterers, etc. A critical element to the bailout, which was originally in the form of loans, is that it will now be in the form of grants, the former requiring repayment at some point, the latter not requiring repayment.

With the collapse of the travel industry owing to the COVID-19 outbreak, carriers had been threatening to lay of hundreds of thousands of staff if financial aid was not forthcoming. Last Sunday, a Senate Republican aid package was offered in the form of $US58 billion in loans, while yesterday, House Democrats had suggested US$40 billion in grants. As part of the deal, the aid will be used principally to pay staff wages up until August 31 and stock buyouts and dividends would be suspended, while senior executives’ pay would also be limited, though the CEOs of Southwest, JetBlue, Delta and United Airlines announced last week that they would either be forgoing all pay, or taking a substantial cut, during the current crisis.

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