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US Airlines Accept $25 Billion in Grants to Survive Coronavirus
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U.S. passenger airlines have agreed in principle to a $25 billion rescue package, said the U.S. Treasury Department on Apr 14. This will ensure that airline workers won’t lose their jobs until October as the country continues to contain the spread of the deadly coronavirus.
The development finally sent airline stocks rallying. Airlines companies have been bleeding following the coronavirus outbreak, with hundreds of flights getting cancelled every day, as governments continue to implement travel restrictions. Things have become so bad that many carriers are opting layoffs and furloughs, while some are completely grounding their fleet.
Airlines Agree to Terms on $25 Billion Package
Per the deal, major U.S. airlines will receive 70% of the funds for payroll in cash assistance, which they won’t be required to pay back. Smaller airline companies receiving $100 million or less won’t be required to pay back any amount at all.
Per the terms of the deal laid out by the Treasury last week, large carriers would be required to repay 30% of the funds awarded, while warrants equal to 10% of the loan amount that were priced at last week’s close. The aid comes just at a time when airlines were starting to give up hopes of a turnaround.
Can Airlines Bounce Back?
Major airlines feel that passenger traffic, which has declined 95% due to coronavirus outbreak, will start recovering from October. However, they have also warned that the slowdown in air travel could extend into the next year or even longer.
That said, the $25 billion grant definitely comes as a much-required respite for the airline industry. The Treasury on Apr 14 said that all six major U.S airlines — American Airlines Group, Inc. (AAL - Free Report) , United Airlines Holdings, Inc (UAL - Free Report) , Delta Air Lines, Inc. (DAL - Free Report) , Southwest Airlines Co. (LUV - Free Report) , JetBlue Airways Corporation (JBLU - Free Report) and Alaska Air Group, Inc. (ALK - Free Report) — along with four other airlines have accepted the support.
Following the news, shares of American Airlines, United Airlines and Southwest jumped 3.3% 6.9% and 1.5%, respectively, on Tuesday. Also, shares of Delta Air Lines, JetBlue and Alaska Air gained 5.6%, 2.3% and 5.2%, respectively. Each of the above mentioned stocks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Details of Grants
Delta Airlines will be receiving $5.4 billion in grants. Of this, $1.6 billion will be an unsecured 10-year low-interest loan that has to be repaid. Delta will also provide the government with warrants to acquire 1% of its stock at $24.39 per share over five years.
JetBlue will be receiving $935.8 million in payroll grants, while Alaska along with its regional carrier Horizon Air will receive $992 million in funding that includes $267 million in the form of loans. American Airlines and Southwest Airlines will receive $5.8 billion and $3.2 billion in grants, respectively.
American Airlines will be required to repay $1.7 billion over the next 10 years, while Southwest Airlines will repay $1 billion over the same time period. The grant is likely to help the airlines in the near term. Airline companies have been fearing that further cancellation of flights due to coronavirus could completely cripple the industry.
At the same time, the statute states that companies receiving funds cannot lay off employees before Sep 30. Many airlines reduced headcount and grounded fleet over the past few weeks. However, the grants secure jobs of airline staff for now and will help the players to get back on their feet.
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US Airlines Accept $25 Billion in Grants to Survive Coronavirus
U.S. passenger airlines have agreed in principle to a $25 billion rescue package, said the U.S. Treasury Department on Apr 14. This will ensure that airline workers won’t lose their jobs until October as the country continues to contain the spread of the deadly coronavirus.
The development finally sent airline stocks rallying. Airlines companies have been bleeding following the coronavirus outbreak, with hundreds of flights getting cancelled every day, as governments continue to implement travel restrictions. Things have become so bad that many carriers are opting layoffs and furloughs, while some are completely grounding their fleet.
Airlines Agree to Terms on $25 Billion Package
Per the deal, major U.S. airlines will receive 70% of the funds for payroll in cash assistance, which they won’t be required to pay back. Smaller airline companies receiving $100 million or less won’t be required to pay back any amount at all.
Per the terms of the deal laid out by the Treasury last week, large carriers would be required to repay 30% of the funds awarded, while warrants equal to 10% of the loan amount that were priced at last week’s close. The aid comes just at a time when airlines were starting to give up hopes of a turnaround.
Can Airlines Bounce Back?
Major airlines feel that passenger traffic, which has declined 95% due to coronavirus outbreak, will start recovering from October. However, they have also warned that the slowdown in air travel could extend into the next year or even longer.
That said, the $25 billion grant definitely comes as a much-required respite for the airline industry. The Treasury on Apr 14 said that all six major U.S airlines — American Airlines Group, Inc. (AAL - Free Report) , United Airlines Holdings, Inc (UAL - Free Report) , Delta Air Lines, Inc. (DAL - Free Report) , Southwest Airlines Co. (LUV - Free Report) , JetBlue Airways Corporation (JBLU - Free Report) and Alaska Air Group, Inc. (ALK - Free Report) — along with four other airlines have accepted the support.
Following the news, shares of American Airlines, United Airlines and Southwest jumped 3.3% 6.9% and 1.5%, respectively, on Tuesday. Also, shares of Delta Air Lines, JetBlue and Alaska Air gained 5.6%, 2.3% and 5.2%, respectively. Each of the above mentioned stocks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Details of Grants
Delta Airlines will be receiving $5.4 billion in grants. Of this, $1.6 billion will be an unsecured 10-year low-interest loan that has to be repaid. Delta will also provide the government with warrants to acquire 1% of its stock at $24.39 per share over five years.
JetBlue will be receiving $935.8 million in payroll grants, while Alaska along with its regional carrier Horizon Air will receive $992 million in funding that includes $267 million in the form of loans. American Airlines and Southwest Airlines will receive $5.8 billion and $3.2 billion in grants, respectively.
American Airlines will be required to repay $1.7 billion over the next 10 years, while Southwest Airlines will repay $1 billion over the same time period. The grant is likely to help the airlines in the near term. Airline companies have been fearing that further cancellation of flights due to coronavirus could completely cripple the industry.
At the same time, the statute states that companies receiving funds cannot lay off employees before Sep 30. Many airlines reduced headcount and grounded fleet over the past few weeks. However, the grants secure jobs of airline staff for now and will help the players to get back on their feet.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>