While details are murky of what the $2 trillion U.S. Covid-19 relief stimulus package will mean for airlines in the long term, airline executives and analysts say that, at the very least, it will keep major U.S. carriers solvent and operational during the crisis.
The U.S. House of Representatives on Friday approved the Senate bill, sending it to President Donald Trump, who signed it Friday afternoon.
The $50 billion carved out for airlines in the package is split into two types of funding. Half is loans, and the other half is direct grants that come with stipulations, including that airlines maintain some level of service and not involuntarily furlough employees or cut benefits through Sept. 30.
In a video message to employees, American Airlines chairman and CEO Doug Parker—who said American would eligible for about $12 billion in funding from the legislation—called it "exceptional bipartisan legislation."
"We are confident those funds, along with our relatively high available cash position, will allow us to ride through even the worst of potential future scenarios," Parker said.
Delta Air Lines president and CEO Ed Bastian in a statement said, "The aid provided in this government assistance package will go to directly support airline workers who will in turn help reignite the U.S. economy."
In a video interview posted on Southwest Airlines' website, CEO Gary Kelly called the stimulus "another option" available to maintain its employment levels amid the crisis as it seeks to raise capital in private markets. He said that Southwest is currently losing "big money" on every flight it operates with load factors hitting historic lows.
"We don't want to furlough anyone, and we don't have plans to furlough anyone," Kelly said "The government grant program could prove something to give us a lot more confidence to follow through with that."
The stipulations go beyond the service and employment guarantee, however. One drawing a lot of industry chatter is a potential government equity stake in carriers that opt in, which Cowen analyst Helane Becker in a research note said "forces the airlines to pay to play, so to speak."
ICF VP and aviation group leader Samuel Engel said that, from his understanding, such transactions "would be negotiated case by case, and any government stake would be nonvoting, so potential government influence would be subtle."
Other restrictions will be longer-lived. As airlines have faced criticism for previous stock buybacks in prior years, those that take stimulus money must agree not to repurchase shares or pay dividends or other capital distributions through Sept. 30, 2021, according to Becker. The bill does not, however, include language around carbon emissions that had been included in some drafts, she said.
Overall, Parker said the conditions in the bill "are not currently well-defined," but he expected that they would be palatable. "Based on my personal conversations with the administration, I am highly confident they want us to be flying, so I expect their terms will not be onerous," Parker said.
Even so, Becker said she expected airlines would be more reticent to dip into the $25 billion set aside as loans "given relatively strong financial positioning for a number of the carriers and the innate negative of increased government influence on their businesses."
Some airlines already are locking down alternative funding sources to navigate through the crisis. United Airlines, for example, secured a $500 million term loan from Goldman Sachs. The carriers are making other aggressive cost-cutting efforts, including cutting executive compensation and implementing voluntary paid leave programs, which still could continue under the stimulus package requirements.
Even with the stimulus, it's clear all of the carriers will emerge as smaller entities, and it could take years for them to return to their prior size. Becker said the industry "has lost at least two years of growth, and likely more," and that a return to "normal" was unlikely before 2022 and 2023.
However, the stimulus has alleviated some analyst fears that airlines would be forced to grind domestic service to a complete halt or implement massive layoffs, which Parker said would have made recovery much more difficult.
"Unlike most other businesses, once we materially downsized, it would take months to start up again," Parker said. "Our team members would require significant training time, and aircraft would have to be gradually be brought back into service."
While Engel said he expected the industry eventually to recover, the flying experience itself could look different in a post-Covid-19 world.
"Airlines have weathered shocks in the past, and with few exceptions, air travel has resumed its prior growth trend, and the march of technological and economic innovation has proceeded," he said. "As humans, we have a tendency to try to fight the last threat, so I can imagine new procedures around health, similar to the way we saw new security measures after 9/11."