Flight Attendants Urge Government Not to Take Airline Stakes
April 01 2020 - 7:12PM
Dow Jones News
By Alison Sider
Flight attendants urged federal officials not to make grants to
airlines contingent on government stakes, saying they believe
executives would refuse -- costing jobs in an industry hard hit by
the novel coronavirus pandemic.
The $2 trillion economic-relief package that Congress passed
last week included $25 billion in grants for passenger airlines to
pay workers, along with $25 billion in loans and loan
guarantees.
The law also allows Treasury Secretary Steven Mnuchin to take a
stake or warrants, options or other financial instruments in
airlines in exchange for the direct payments. That provision could
dissuade carriers from accepting assistance, unions representing
flight attendants at United Airlines Holdings Inc., American
Airlines Group Inc., Southwest Airlines Co. and other airlines
wrote in a letter to Mr. Mnuchin on Wednesday.
"This effectively renders the payroll grants a poison pill that
will cost us our jobs," union leaders wrote.
Some airlines met with Treasury Department officials Tuesday to
discuss whether there are alternatives to direct equity stakes in
exchange for grants and loans, people familiar with the discussions
said. Government equity stakes are raising concerns about dilution
of airline shares, these people said.
The pushback against possible direct stakes from flight
attendants could complicate negotiations to aid an industry
decimated by the drop in air travel as the pandemic has spread
around the world. With planes flying nearly empty on many routes,
airlines are cutting costs severely.
Airlines and labor unions fought for part of the government aid
to come as grants to pay employees. Without that, carriers had said
they likely would need to resort to furloughs or pay cuts.
Some Republicans objected to cash payments. People familiar with
the negotiations have said that allowing the government to take
stakes in airlines -- and so benefit from the eventual recovery --
was part of the effort to resolve the impasse.
Some airlines are more reluctant to accept stimulus loans, said
an industry official who has been in touch with carriers in recent
days. Airline executives are wary of restrictions on layoffs and
furloughs, given the bleak outlook for travel demand, the official
said.
In 2009, the Treasury Department took a 61% equity stake in
General Motors Co. in exchange for about $40 billion in loans. The
money came from the government's Troubled Asset Relief Program,
launched in late 2008 mostly to bail out banks during the financial
crisis. Treasury also spent $12.5 billion on a stake in Chrysler
Corp.
Ultimately, the government lost about $11.8 billion on its
investment in the auto makers. The Treasury Department sold down
its stake in GM over time, unloading its final GM shares in
December 2013. It sold its final shares in Chrysler in 2011 to
Italian auto maker Fiat SpA, which eventually created Fiat Chrysler
Automobiles NV.
Steven Rattner, the chief architect of the Obama
administration's bailouts for GM and Chrysler, said the government
tried to have a light touch.
"I don't see any argument for why the airlines should just be
given money or lent money at below market rates," he said. "They
have to take it on commercial terms."
The unions representing flight attendants said they didn't
object to requiring a stake in exchange for loans, but said grants
to cover payroll should be treated differently because they go
directly to workers.
Rep. Peter DeFazio (D., Ore.), chairman of the House
Transportation and Infrastructure Committee, echoed that view
Wednesday.
"Take your pound of flesh. But don't slow down the payroll
assistance which is what [Mr. Mnuchin] is in the process of doing
right now," Mr. DeFazio said during a conference call with
reporters.
Some industry officials have said they don't expect the
government to impose onerous terms, and carriers including American
Airlines have said they plan to apply for the aid.
Other airlines have said they are reviewing the Treasury's terms
for the assistance. In guidance released on Monday, the Treasury
asked airlines seeking grants to identify financial instruments and
propose terms for "appropriate compensation for the
government."
The Treasury has said the financial instruments could include
warrants, options, preferred stock, debt securities or notes, but
didn't provide other specifications. The Treasury has encouraged
airlines seeking grants to apply by Friday.
Access to the loans is also contingent on airlines not having
alternative funding sources from the private sector. U.S. carriers
have raised billions of dollars in new loans in recent weeks.
American drew down another $2.5 billion Wednesday.
Write to Alison Sider at alison.sider@wsj.com
(END) Dow Jones Newswires
April 01, 2020 18:57 ET (22:57 GMT)
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