Airline Shares Gain as Treasury Preps First $25 Billion Rescue Payment

Airline bosses will limit their own pay, refrain from buying back stocks and paying dividends and can't layoff employees until at least September 30.

U.S. Airline shares extended gains Tuesday as carriers prepared to receive the first wave of $50 billion in bailout funds while Treasury officials pressed for assurances on job protections and CEO pay restrictions to protect taxpayers.

Following last week's $2.2 trillion Coronavirus Aid, Relief, and Economic Security approval by Congress last week, which carved out $58 billion in support for commercial and cargo carries, Airline executives have been told they can't lay off employees until at least September 30 and must place limits on their own compensation plans for the next two years. 

Airlines also can't buy back their own shares nor make dividend payments until at least September 2021 as they await the first$25 billion payment from the $50 billion in funds, which is scheduled to arrive next week.

The Treasury guidelines, published late Monday, also asked the airlines to "identify financial instruments", including equity, debt or stock options, that would "provide appropriate compensation" to taxpayers if any of the planned $29 billion in loans were to default.

“I’ve been very clear this is not an airline bailout,” Treasury Secretary Steve Mnuchin said Friday during an interview with the Fox Business Network. “It is support to the airlines for national security reasons that the taxpayers are going to be compensated for.”

However, even with the restrictions in place, and carries hiving domestic and international capacity while offering bargain-basement prices for flights later in the year, U.S. airline shares were also on the march Tuesday, with American Airlines  (AAL) - Get Report rising 6.67%, in pre-market trading and rivals Delta Air Lines  (DAL) - Get Report and United Airlines  (UAL) - Get Report gaining 5.3% and 5.7% respectively.

The International Air Transport Association, also known as IATA, said Monday that carriers around the world could lose $252 billion in revenues this year as travel restrictions and border closings hammer international demand. 

"Notwithstanding some recent signs of some upturn in the China domestic market, for the industry as whole we expect the recovery process will be slower than the six to seven month time frame observed in past epidemics," IATA said."The extension of recovery time reflects both the staggered timing of the start of the virus outbreak in different regions and the expected global recession, which will continue to impact passenger demand even after the border restrictions are lifted."