American Airlines (NASDAQ: AAL) on Wednesday informed 25,000 employees that their jobs could be eliminated after Oct. 1, when federal money covering wages for airline workers runs out.
Company executives say furloughs are necessary because the airline will have an oversupply of workers as it operates a significantly reduced schedule to match the downturn in travel caused by the coronavirus pandemic.
“We hate taking this step, as we know the impact it has on our hardworking team members. From the time the CARES Act was signed in March, we had a stated goal of avoiding furloughs because we believed demand for air travel would steadily rebound by Oct. 1 as the impact of COVID-19 dissipated. That unfortunately has not been the case,” Chairman and CEO Doug Parker and President Robert Isom said in a letter to employees made public in a regulatory filing. “Our passenger revenues in June, which we believe are better than others in the industry, were more than 80% lower than June 2019. And with infection rates increasing and several states reestablishing quarantine restrictions, demand for air travel is slowing again.”
American Airlines received $5.8 billion in assistance from the U.S. government to protect jobs, with $4.1 billion in the form of a direct grant and the balance through a low-interest loan. The federal government dedicated $25 billion to passenger airlines for payroll protection. The Dallas-based carrier also is seeking about $4.75 billion from a separate $25 billion pot for loans and loan guarantees.
United Airlines (NASDAQ: UAL) last week notified 36,000 workers of potential layoffs. Delta Air Lines (NYSE: DAL) said in Wednesday’s quarterly report it will take charges of between $2.7 billion and $3 billion to cover voluntary early retirement and separation programs. The carrier said in Tuesday’s earnings release that 17,000 flight attendants, ticket agents and other workers had opted for buyouts. Company officials have suggested that the uptake in buyouts may preclude the need for involuntary furloughs, Reuters reported last week.
In late May, American began to trim midlevel management by 30%.
Like its competitors, American drastically reduced system capacity, implemented voluntary leave and early retirement programs, lowered executive pay, reduced spending on outside contractors, and retired dozens of aircraft in an effort to preserve cash.
The two company leaders expressed hope that many workers will take advantage of unpaid, extended leave and early buyout programs to avoid the need for layoffs. Extended leaves with medical coverage are available for 15, 18 or 24 months. Pilots have different leave and early-out programs because of the unique circumstances associated with their training and mandatory retirement age.
The airline industry and its labor unions are lobbying the federal government to extend the Payroll Protection Program in the coronavirus bailout for another six months because of the extended nature of the outbreak, but there doesn’t seem to be appetite on Capitol Hill for another big-industry bailout. By the end of March, demand for travel should be greater and the need for involuntary furloughs less, industry officials argue.
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