Bail Us Out Or We Lay Off Workers; Delta Ends Stock Buybacks And Dividend

Bail Us Out Or We Lay Off Workers; Delta Ends Stock Buybacks And Dividend

With U.S. airlines waiting for Washington to pass a desperately desired bailout package, United Airlines told employees Friday that it would be forced to make mass layoffs by the end of March if aid isn’t lined up by then, and Delta Air Lines said it was suspending its dividend and share buybacks.

A publicly released letter to United employees that was attributed to United Airlines CEO Oscar Munoz, President Scott Kirby and labor union leaders warned that the company would slash its payroll in proportion to a 60% schedule reduction planned for April if the government did not provide sufficient support soon. The letter called on employees to contact their elected representatives.  

“While many in Washington, D.C. now realize the gravity of this situation, time is running out,” it said.

Delta CEO Ed Bastian pushed back at critics of a taxpayer rescue of the beleaguered industry who have charged that the airlines devoted too much of the substantial profits they’ve earned over the past decade to increasing their share prices via buybacks when they could have socked away money for a rainy day. In a memo to employees, he wrote: “In recent days some critics have argued that the airlines have not been good stewards of our money during our profitable years. At Delta, nothing could be further from the truth.”

Bastian said Delta has put 50% of operating cash flow “back into our business by investing in our people and our customers,” used 30% to pay down debt and returned 20% to shareholders.

Nonetheless, he said the board had decided to suspend dividend payments and share buybacks to conserve cash. Delta is burning $50 million a day, Bastian said, despite a wide range of cost cuts already undertaken amid a precipitous decline in travel due to the coronavirus pandemic. The company now expects revenue in the second quarter to fall 80%, or $10 billion, compared to the same quarter last year.

The biggest U.S. airlines spent 96% of their free cash flow over the past decade on share buybacks, according to Bloomberg.

Delta also disclosed it had arranged a $2.6 billion secured credit line and is drawing $3 billion from existing revolving credit facilities.

U.S. passenger and cargo airlines have asked the federal government for big money: $58 billion equally split between grants and loans, as well as relief from excise taxes through 2021.

An economic stimulus bill drafted by Senate Republicans would give the airlines $58 billion, but just in loans and loan guarantees. The loans would come with restrictions on executive compensation.

U.S. airlines could run out of money to pay their obligations by midyear in a worst-case scenario, the industry group Airlines For America stated Monday.

Travel demand has plummeted sharply over the past few weeks as the pandemic has spread worldwide and travel bans have limited the number of destinations airlines can fly to. Some U.S. carriers have seen cancellations exceed new bookings by a ratio of two to one.

Airlines around the world have slashed their schedules. In the U.S., American Airlines has dropped all but three international routes and plans to cut its domestic schedule by by 20% in April and 30% in May. Delta is reducing capacity by 70% and parking roughly half its aircraft.

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