• ITVI.USA
    15,913.180
    -35.240
    -0.2%
  • OTLT.USA
    2.793
    -0.005
    -0.2%
  • OTRI.USA
    22.300
    0.290
    1.3%
  • OTVI.USA
    15,900.990
    -35.610
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  • TSTOPVRPM.ATLPHL
    2.950
    -0.570
    -16.2%
  • TSTOPVRPM.CHIATL
    3.610
    0.650
    22%
  • TSTOPVRPM.DALLAX
    1.370
    -0.240
    -14.9%
  • TSTOPVRPM.LAXDAL
    3.550
    0.210
    6.3%
  • TSTOPVRPM.PHLCHI
    2.320
    0.220
    10.5%
  • TSTOPVRPM.LAXSEA
    4.110
    0.250
    6.5%
  • WAIT.USA
    126.000
    0.000
    0%
  • ITVI.USA
    15,913.180
    -35.240
    -0.2%
  • OTLT.USA
    2.793
    -0.005
    -0.2%
  • OTRI.USA
    22.300
    0.290
    1.3%
  • OTVI.USA
    15,900.990
    -35.610
    -0.2%
  • TSTOPVRPM.ATLPHL
    2.950
    -0.570
    -16.2%
  • TSTOPVRPM.CHIATL
    3.610
    0.650
    22%
  • TSTOPVRPM.DALLAX
    1.370
    -0.240
    -14.9%
  • TSTOPVRPM.LAXDAL
    3.550
    0.210
    6.3%
  • TSTOPVRPM.PHLCHI
    2.320
    0.220
    10.5%
  • TSTOPVRPM.LAXSEA
    4.110
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  • WAIT.USA
    126.000
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Air CargoAmerican ShipperNews

Airlines, pilots plead for more federal aid to retain workers

Officials tell House panel $14B is downpayment for better economy, praise air cargo sector for transport role during pandemic

U.S. airlines collectively hope to reach a breakeven point by the end of the year, but even with public aid and severe austerity measures, barring another round of grants, their precarious condition means they won’t be able to retain thousands of employees needed to scale operations when the economy picks up, industry officials said Tuesday.

Domestic carriers are currently burning an estimated $150 million of cash per day, with analysts projecting negative cash flow of $90 million per day in the second quarter and $80 million in the third quarter, Nicholas Calio, president of Airlines for America, testified before the House Transportation and Infrastructure aviation subcommittee.

He, along with Joe DePete, president of the Air Lines Pilots Association, argued that federal support to keep airline workers on the payroll is in the public interest. Airlines, they said, are the lubricant for global economic activity and have played a critical role in delivering needed medical supplies and other goods during the pandemic.

“If not for this unprecedented program, the airline industry would be in tatters; this hearing would instead be about industry bankruptcies, devastating challenges to cargo and passenger throughput, and the potentially hundreds of thousands of unemployed pilots and other airline employees who would be unable to respond to eventual demand,” DePete said in prepared remarks.

Passenger airlines received $40 billion in workforce protection grants in two rounds of economic relief, but warn they plan to furlough tens of thousands of employees at the end of the month when aid runs out unless Congress extends the program. A $1.9 trillion economic aid package being debated includes $14 billion for airlines, which officials say will carry the industry through September, by which time travel revenue is expected to improve.

“These aviation workforce funds are truly an investment in our economy. In fact, the Payroll Support Program [PSP] could be used as an example of a government program that works, as it has effectively met the goals and intended purpose … to preserve jobs,” Calio told the hearing

“A strong and stable aviation industry is a key building block for a global recovery from the COVID-19 pandemic,” Calio said, noting that the U.S. economy is expected to lose $155 billion from the collapse of international travel. Cross-border tourism provides a $59 billion trade surplus and supports about 1.2 million jobs, he added.

“In a year filled with layers of struggle and financial loss, and despite the devastating impacts of COVID-19 across global economies, the pandemic has shown the indispensable role that passenger carriers and all-cargo air carriers play in both the domestic and global supply chain,” Calio said in prepared remarks. 

Cargo has been a bright spot for airlines in the past year, with volumes in January recovering to 2019 levels on the back of a massive surge in international trade. Airlines repurposed many aircraft for dedicated cargo operations and many have achieved sizable year-over-year gains in cargo revenue, although they are dwarfed by the passenger losses. Domestic tonnage grew 9% through November, which also represented the fifth consecutive year-over-year increase in international volumes, according to the latest figures from the Department of Transportation.

“Through close coordination with the health care community and federal, state and local governments, the cargo industry has delivered a staggering amount of personal protective equipment, diagnostic test kits, essential medical supplies, humanitarian aid and vaccines across the globe. They have played an outsized role during the pandemic and will most certainly be critical to paving the way toward global herd immunity and a return to a modicum of normalcy,” Calio said. “Until one steps back to fully appreciate the logistical effectiveness and efficiency of our all-cargo operators, it is easy to take them for granted and thoroughly recognize the incredible contribution they make to our daily lives. Pandemic or no pandemic, they are vital to our standard of living, but this crisis has shown the pivotal role they play in saving lives.”

Airlines for America members include Atlas Air (NASDAQ: AAWW),  FedEx (NYSE: FDX) and UPS (NYSE: UPS). Cargo airlines received $3.2 billion from the CARES Act last March but were excluded from the next round because of strong revenues. Some lawmakers were upset that cargo airlines accepted federal grants and even asked a handful of them to return the money.

The coronavirus set back the domestic airline industry just as it reached its healthiest point in decades, with many carriers finally realizing a decent return on investment. Last year, carriers reported $46 billion in pre-tax losses, with analysts projecting $18 billion more in 2021 — exceeding by $30 billion the profits from 2018 and 2019. 

Airlines radically cut costs through early retirement and voluntary separation programs, early retirement of older aircraft, reduced flight schedules and other measures.

The first half of 2021 appears bleak too. After a small summer bounce in domestic travel, passenger throughput and forward bookings receded in the face of new COVID outbreaks and widespread travel restrictions. Passenger levels remain 60% below a year ago, but the situation is much worse for international business. Last week, trans-Atlantic air travel was down 90%, while trans-Pacific and U.S.-Canada air travel are down 94% and 96%, respectively, according to Airlines for America.

Travel agencies sold 59% fewer airline tickets in the past six weeks than they did during the same period in 2019. A week earlier, that rolling statistic showed a 64% decline, about where the numbers stood in December, according to Travel Weekly.

Calio reiterated predictions that air travel won’t return to pre-pandemic levels until 2024, at the earliest.

Debt reality

But airlines won’t look the same as they did in 2019. They shrank and borrowed nearly $60 billion to survive the crisis, but the loans will make it difficult to grow for years because they have to be repaid first, Calio warned. And beyond the capital markets, airlines also are on the hook to the U.S. government.

Calio pushed back on the notion that the PSP is a bailout for airlines, saying the money simply passes through to workers and comes with extensive conditions.

Among those is a repayment requirement of 29% of the funds with interest. The initial PSP funds covered 82% of payroll expenses, and the extension would only cover 60% of the projected full-employment payroll costs.

“We appreciate your consideration of the program extension and hope there can be a universal understanding of the PSP and an agreed-upon set of facts to drive future discussion of the inclusion of punitive measures on funds intended to be grants for our workers. Saddling air carriers with additional debt and making them suffer the loss of much-needed management talent runs counter to the goals of recovery and international competitiveness of U.S. airlines,” Calio said.

Additionally, passenger carriers have drawn down $19 billion in federal loans designed to help airlines maintain operations until demand improves.

The International Air Transport Association has urged governments to find alternative ways to help airlines than through loans, suggesting that international development banks help airlines in lower-income countries.

Expectations for larger cash reserves so airlines can tap capital markets and better weather extreme events without relying on federal assistance will also act as a drag on profitability and growth, said Calio, who nonetheless sounded optimistic that airlines will be stronger in the long run. 

Still, the speed and degree of recovery is likely to vary by industry segment. Credit rating agencies expect low-cost, leisure-oriented airlines to recover faster than network airlines that rely more heavily on business and international travelers. 

DePete stressed that without PSP it would take airlines longer to respond when travel demand returns because unemployed pilots can’t simply return straight to the cockpit. Keeping them active allows them to stay current with training, medical approvals and security clearances and makes it easier for airlines to assign crews to aircraft and bases.

“These frictional costs are expensive, and if you are an airline, the last thing you would want in the midst of the largest downturn in the history of the industry is not being able to fully satisfy a recovery in passenger demand because you cannot train pilots fast enough,” the union chief said. “Getting furloughed and inactive pilots fully qualified ahead of an accelerated demand curve will help mitigate the impacts from any potential chokepoints in the training process and ensure the speediest return to service.”

Many lawmakers support a PSP extension, including T&I Chairman Peter DeFazio, D-Ore., and Aviation Chairman Rep. Rick Larson, D-Wash.

Larson also called for aviation workers to get priority access to COVID vaccines and an “FDR-like investment in infrastructure” for the aviation system.

The $1.9 trillion American Rescue Plan, which passed the House last week, would also provide $8 billion to help airports and concessionaires open and $3 billion to help retain and rehire aerospace supply chain workers.

According to the consulting firm Oliver Wyman, as many as 4,700 aircraft that had been on the production schedule at the beginning of 2020 will no longer be built as scheduled, which will have a significant impact on suppliers. 

The Government Accountability Office suggested Congress could also help the aviation recovery through worker retention incentives, retraining and efforts to strengthen the pipeline of new applications for careers in aviation manufacturing and maintenance. 

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

RECOMMENDED READING:

For airlines in 2020, cargo no substitute for people

Airlines absorb $391B revenue shortfall in 2020

House Democrats try to claw back COVID aid from cargo airlines

House committee slams airline contractors for layoffs after COVID aid

Eric Kulisch, Air Cargo Editor

Eric is the Air Cargo Market Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals from the American Society of Business Publication Editors for government coverage and news analysis, and was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. Eric is based in Portland, Oregon. He can be reached for comments and tips at ekulisch@freightwaves.com

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