The first deadline for airlines to apply for funds from the federal stimulus package is the close of business Friday.
Delta said it is evaluating the program, which would also require carriers to agree to other concessions, including curbing shareholder payouts and maintaining a minimum number of flights.
The coronavirus bailout calls for airlines to "refrain from conducting involuntary furloughs or reducing pay rates and benefits until September 30, 2020" for employees other than corporate officers, in order to be eligible for $25 billion in funds. Another $25 billion is available in loans under the stimulus, known as the CARES Act, under different terms.
Delta last week announced a reduction in hours for ground workers and many employees at its Atlanta headquarters. Although that means the airline is cutting hours and total pay, it says it is not cutting “pay rates,” per the wording of the bailout package.
And airlines can lay off employees again beginning in October under the bailout terms.
Many industry observers expect job cuts to come after that date, with the expectation it could take months longer for air travel to recover. One in five Americans don't plan to travel again until 2021, according to a recent survey by travel company Upgraded Points LLC.
Analysts expect airlines will shrink the size of their operations on a permanent basis. “When we get to the other side of this, the world’s airline fleet will be smaller, the world’s airlines will be smaller,” Cowen airline analyst Helane Becker wrote in a note to investors.
Delta has also used tens of thousands of contract workers to help run its operations, from checking in passengers and handling bags at some airports to assisting passengers in wheelchairs, operating Delta Connection flights and providing technical support.
Those contract workers may not be protected in a Delta bailout because they are not in-house Delta employees.
There is a smaller portion of the stimulus, $3 billion, available to aviation contractors that would also be bound by restrictions on involuntary furloughs and cuts in pay rates.
Delta says it doesn’t have a count of how many contract workers have lost their jobs as a result of its substantial reduction in the use of consultants and contractors. But a number of aviation contractors have already announced reductions or closures, affecting hundreds and likely thousands of workers.
Compass Airlines, a regional carrier that operated flights for Delta Connection and American Eagle with nearly 1,400 employees, halted flying for Delta on March 31 and is shutting down completely effective April 7. “Radical capacity reductions left Compass without the ability to fly even minimally viable schedules,” Compass said in a written statement.
Another Delta Connection carrier, SkyWest, is closing its Atlanta crew base at the end of April.
Delta is also halting its in-flight publication Sky magazine and cutting back on food and beverage service.
In-flight catering contractor Gate Gourmet disclosed cuts affecting 500 workers in Atlanta, according to a state Department of Labor business layoff and closure listing.
Other airline contractors including DAL Global Services LLC and ACTS-Aviation Security Inc. have also reported job cuts in metro Atlanta.
The maximum amount of rescue funds airlines can qualify for depends on their employee compensation including salaries, wages and bonuses from April 1 to Sept. 30, 2019.
During that time, Delta paid out about $7 billion in salaries and benefits, according to the U.S. Bureau of Transportation Statistics.
The Treasury Department said it will consider whether an airline is eligible, as well as the availability of funds and the airline’s willingness to adhere to the conditions, including provisions for the clawback of payments. Airlines can submit applications up until April 27, but later applications may not be approved as quickly.
Treasury is also asking airlines to propose compensation to the federal government in exchange for the funds — such has stock, options, warrants, debt securities, notes or other financial instruments. That raises the prospect that the federal government could become a shareholder in airlines.
Some companies pushing for aid have been criticized for using past proceeds for stock buybacks that transferred their money to shareholders. The federal aid package requires eligible companies to not pay dividends or distribute capital to stockholders through Sept. 30, 2021.
Delta says out of its $64 billion in cash flow since 2010, it has paid 20% to shareholders, used 30% to pay down debt and put 50% into its business, including investments in airports and planes, increasing employees’ pay and paying out profit sharing and pension benefits.
Among the conditions companies must meet to be eligible for billions in funding under the airline bailout, an air carrier or contractor must:
- "refrain from conducting involuntary furloughs or reducing pay rates and benefits until September 30, 2020"
- "through September 30, 2021, ensure that the air carrier or contractor shall not pay dividends, or make other capital distributions, with respect to the common stock (or equivalent interest) of the air carrier or contractor"
Source: H.R. 748 (CARES Act)