Rip off the bandaid now or slowly bleed out?
 

One of the strings attached to the government bailout money is preventing job actions or furloughs until September. Airlines are taking different strategies. It seems like Southwest is going to reject the money and possibly furlough now, whereas other airlines are going to take the money and furlough later.

If the money is just buying us a few months of time, wouldn't have been better spent elsewhere? Most people are thinking travel demands won't be back to where they were pre-covid for a few years, so furloughs and layoffs are going to happen.

You do realize the 25 billion worth of grants is only allowed to be used for payroll. The airlines can’t use that portion for other “areas”. Also the grants don’t have to be paid back. Are you advocating for putting people out on the street earlier?

If the grant money covers the cost of keeping everyone, then it's almost a no-brainer...

Keep the staff, generate good will with employees and anyone else who cares (congress?), and be in a position to ramp up very quickly if things suddenly turn around.


If the grant money is not enough to cover the cost, then they have to look at how much will come out of pocket, how much cash they'll have on Oct 1, and whether it's worth it to be ready for a hypothetical but very uncertain or unlikely upturn in Q4.

Then they have to compare that with how much they can save with immediate slash-n-burn furloughs.

The grants don't have to cover 100% of payroll costs, but they probably have to cover a big part of it.

I could very well see Southwest or other single-fleet LCC's just skipping the grants and going straight to furlough. For example Southwest would have minimal training impact and could argue that its better to preserve its cash and quickly shrink so that it will be in position to capture market share on the other side.

On the other hand you have the Legacies with complex fleets, even more complex union contracts to navigate and extremely poor cash situations. In their case it might be a necessity to take all the money they can get just to avoid liquidation in a matter of weeks. However, I'm sure the legal teams are pouring over the legalese of the loans and grants to look for every available loophole.

Lastly, they could be using this no-furlough time-out to retrain and prepare the pilot group for what comes Oct. 1. For instance they can run a displacement bid throwing every potential furlough onto the junior fleet with a class date of October. They sit out the summer and when the airline is legally able to they just furlough those guys. Everyone else gets retrained over this summer as much as possible. Depending on how desperate the situation at the major the displacement and retraining might not even be done by then but you just work with what you got and try to save as much money along the way as possible.

Finally, and this really is the worst case scenario: they go bust. They renege on the terms of the grants and use the courts to rip their contracts to shreds and just do what they want. What's Congress going to do, demand its money back? It would not be a tough argument to make that the viability of Delta, United, AA will hinge on being able to lay off outside the seniority list to save training costs. The union would cry to high heaven of course but behind closed doors if they're presented with the alternative being oblivion, they might just have to take it. Lets hope not!

I'm not taking a position either way, but it does seem foolish to spend 25 billion to just delay the inevitable. We're all flying around empty airplanes and losing money on every flight. At some point, we need to realize that it isn't sustainable, right?

I’d rather have 4 months of pay before going into unemployment and would appreciate it if my employer had the decency to do that after they profited off my labor for years.

Worth noting that BK is not as "safe" for management now as it was pre-2007 (the rules changed).

The creditors, not the DIP/management team is more in the driver's seat. Last time BK was a convenient way to shed inconvenient obligations while still keeping your management job. This time it would be far riskier for the bosses, my gut feel is that they'll avoid it if they can, ie won't go there just to enhance future profitability, but rather only if they're near danger of liquidation.

Theres no shortage of dumb takes, but here’s another

Where are you getting this nonsense from? :rolleyes:

No this is a real concern. If your employer doesn't need cash NOW, they might take a longer-term view.

I think the 4 months is to stabilize them through this ridiculously slow time for the industry. They probably would not of been able to make it out the other side of this virus lockdown otherwise. The real question is what is the travel industry going to look like in October? I'm betting that's where the fleet/manpower planning folks are earning their keep right now. They'll come up with their best plan of action and then make their recommendations to the execs. My guess is the rest of the 4 months will be gearing up for that day through displacement bids and training while everything is shut down. That way October 1st they'll be ready to go with whatever the long term plan is.

To add: airlines with simple fleet plans have a much easier task ahead. Frontier, Spirit, Southwest and even JetBlue or Alaska might decide its just easier to not take the money and go their own way. That money is coming with some onerous terms for management and just like Ford in 2008 decide its just easier if they don't strap themselves to Uncle Sam.

Now I’m no SWA cheerleader (and that’s a gross understatement), but I’d be shocked if they went for furloughs instead of the grants. It would utterly destroy employee moral and what the Kompany has stood for.

Again, not impossible but personally I can’t wrap my mind around furloughs over grant money. Now furloughs after September......definitely a good possibility.

I agree they really don't want to go there, but what if furloughs leaves them $2B in cash on 01 Oct and grants + no furloughs leave them $0.8B?

I think it comes down to how much of the pie each carrier will be allocated. Don't know if that will be based on a fixed metric like ASM's, or if it will be need based. If it's the later I suspect some furloughs might happen at non-big-three majors.

The grants are the payroll from the same period last year

Is that in the law, or policy from Treasury? Also know if that includes the cost of bennies?

It's in the language: salary and benefits, based on the amounts paid to employees 4/1/2019 thru 9/30/2019.

OK, I didn't look hard enough. If that's what it is then everybody should take the grant unless they have some weird circumstance.

too bad my airline grew significantly since then and our payroll costs are much higher

At least the lack of open time and premiums as well as overtime in other positions will be way lower or nonexistent this year and reduced lines will stretch it a bit further for pretty much all carriers. Even with growth I think payroll costs could be lower.

My understanding of it as it’s been explained to us at F9 is Grant $ = X Payroll $ = Y. If X<Y the difference has to be made up somewhere. Since it specifically says furloughs are off the table until Oct 1, that isn’t an option. It’s the reason a COLA LOA is in the works for us now (after the stimulus was announced). If not enough people take a COLA to make up for the shortage in payroll, that may be why taking the grant $ may not be an option for some companies.

8-777-cash-now!

not to be a dick but that is from the FA union and they have a less than stellar reputation for being a reliable source for information on the company. FWIW the pilot union also has issues with the ETO program as it circumvents the RLA and our CBA. I think both unions just want to have a say in working together to come up with a partial leave package.

Yes, that's the math they're dealing with.

In some case it might be acceptable if X < Y by some modest amount...

1. Furloughs cost money for training, relocation, etc. If you have lots of fleet types, furloughs cost big money.

2. If they see a potential opportunity to be ready to grab market share later in the year if things rebound, they might be willing to blow a little cash in order to be fully staffed and ready. Big three probably equate massive shrinkage to survival, others may see an opportunity to play chess.

But it sounds like the grants will pretty much cover payroll costs + bennies anyway, unless somebody significantly grew their labor force since the same time period last year. Even then, probably better to take the grant.

Please read the bill before making assumptions on the future... so much misinformation by forum trolls who haven’t spent 10 minutes to read the airline section of the bill.

So if SWA doesn’t take the money, do the rest of us get a bigger piece of the pie?

No. Each airline was only allocated what it would cost them to cover payroll and benefits through September 30th.

good point

That's fine, but there's discussion of exactly what I am talking about in the Southwest forum.

The details in the bill don't tell you who is going to take the bait. It might help you guess though.

Treasury has a say on the details too...

https://www.reuters.com/article/us-h...-idUSKBN21I09X

no airline ever laid off out of seniority
even those that don’t exist