AAL American Airlines Group Inc

By Alison Sider 

U.S. airlines succeeded in getting billions of dollars of federal aid, but it will only buy them a few months: Their survival depends on how quickly passengers return when coronavirus-driven restrictions ease.

The Treasury said late Tuesday that it had struck an agreement in principle with 10 major airlines to distribute $25 billion in payroll assistance that Congress approved in the $2.2 trillion federal stimulus package last month.

The money will keep workers employed -- airlines that accept the money are barred from laying off or furloughing staff until October. It will also give the Treasury a stake in their future, including up to 12% in American Airlines Group Inc. if the world's biggest carrier proceeds with its plan to seek a separate government loan.

However, the carriers may find themselves back in the same dire position in the fall if demand doesn't improve. With people staying home to comply with state shelter orders, demand is down as much as 95% and planes are flying nearly empty. Delta Air Lines Inc. and United Airlines Holdings Inc. are among the airlines that have warned that they will have to shrink to adjust to a slow recovery.

American Airlines Chief Executive Doug Parker said Wednesday there are early signs people are thinking about traveling again, including some new bookings beyond 90 days out and customer inquiries about convention travel in the fourth quarter. But it could be months or years before people are traveling the way they did before the pandemic hit, according to airlines and analysts.

"It certainly feels like we're at the bottom...the real question is how long you stay at the bottom," Mr. Parker told CNBC, adding that the government funds would be sufficient based on the airline's projections of low demand through the second quarter and a "very gradual" recovery later in the year.

The International Air Transport Association on Tuesday forecast that airlines around the world would lose $314 billion in revenue this year, a 55% drop from 2019, as it incorporated more pessimistic assumptions about the impact on the global economy and the relaxation of travel restrictions.

Airline shares were mixed Wednesday, with United and American up around 3%, and Delta and Southwest Airlines Co. falling.

Airlines and labor unions campaigned aggressively for government aid, warning that the carriers would need an immediate cash infusion to avoid furloughs. Still, paychecks are likely to be smaller for many workers, including pilots and flight attendants who won't be paid above the minimum levels set out by their contracts. Airlines have been encouraging employees to take unpaid leave or early retirement to help cut costs and stretch the government funds. Tens of thousands have volunteered.

The outlook for airlines has only gotten worse since they began asking for government aid, with passenger counts dropping by the day. While formal talks haven't started, some industry officials are starting to think about whether the government would step in with more assistance.

The assistance funding is more limited than what airlines had been banking on in some respects. Airlines have said they would have to repay about 30% of the funds, which they hadn't originally anticipated, at a time when airlines are already taking on billions of dollars of additional debt and drawing down credit lines. Some airlines and analysts pointed out that the funds cover only about three-quarters of carriers' labor costs.

"The approved grant amount was lower than we anticipated on an airline by airline basis," Cowen & Co. analyst Helane Becker wrote. Still, some had feared the government would demand even more in return for the money.

American is the first carrier to confirm it will go ahead with an application for another $4.75 billion government loan from a separate $25 billion program in the stimulus. American said in a filing Wednesday that it would issue warrants to purchase an additional 38 million shares to the Treasury for that loan, in addition to collateral that hasn't yet been determined.

The loan amounts will be determined by airline capacity, including international flying, with aircraft, spare parts, routes and loyalty programs as potential forms of collateral, an industry official said.

The government will wind up with small stakes in the largest airlines -- about 0.5% of Southwest and 1% of Delta, if it chooses to exercise warrants the airlines are offering as part of the agreement. The warrants give the government the right to purchase a certain amount of shares at last week's prices.

While the government funds are a lifeline, they also present new burdens, including a requirement for airlines to continue flying to the cities in their networks.

Airlines have been asking the Transportation Department to make certain exceptions for cities where state and local governments are preventing travel. These include cities where multiple airlines offer service, cities that are relatively close to other airports, and other places where demand has dried up.

"Flying empty, or nearly empty airplanes, to points that do not offer enough business to make them rational, much less commercially viable, is a waste of precious resources," United said in a filing last week.

--Doug Cameron contributed to this article.

Write to Alison Sider at alison.sider@wsj.com

(END) Dow Jones Newswires

April 15, 2020 17:15 ET (21:15 GMT)

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