American Airlines To Apply For $12B In Coronavirus Government Assistance

American Airlines Group Inc. AAL will apply for government assistance as it suffers a drop in demand caused by the COVID-19 pandemic.

What Happened

The airline expects $12 billion of the total $50 billion in assistance allocated to airlines under the CARES Act. The act was passed by Congress last week and sets out to provide relief for the coronavirus hit economy, reported CNBC.

American’s CEO, Doug Parker, said in a message to his employees, “We intend to apply for these funds and are confident that, along with our relatively high available cash position, they will allow us to fly through even the worst of potential future scenarios.”

American will also offer partially paid leave and early retirement to staff. Employees other than pilots could get 25% of their pay for a leave of one year and will continue to receive medical benefits. Those employees who have been with the airline for more than 10 years can receive half of their pay for 12 months.

Why It Matters

Federal funding for airlines under the CARES Act is predicated on airlines giving the government equity stakes, and meeting requirements such as keeping employees on the payroll while maintaining certain air routes.

Airlines in the U.S. have been hit hard by the pandemic. 21,000 Delta Air Lines, Inc. DAL employees have offered to go on voluntary unpaid leaves of varying lengths. 

Delta is also suspending buybacks and deferring $500 million in capital expenditure, as well as halting future dividend payments. Alaska Air Group Inc. ALK has also suspended its dividend program and cut capacity by 70%.

A leaked memo from Delta indicates that airlines are planning on cutting worker hours irrespective of the protections offered by the CARES Act. United Airlines Holdings Inc. UAL is also following the same course, as is American.

American has reduced its flight schedule by approximately 60% for April and reduce it by 80% for May for May in “light of the record low demand,” according to a video statement made by Parker to employees.

Price Action

American Airlines shares traded 1.88% higher at $12.48 in the after-hours session on Monday. The shares had closed the regular session 12.75% lower at $12.25.