Why the Airline Bailout Package Was Inevitable

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Was an airline bailout inevitable?

Scott Wagner, partner at Bilzin Sumberg, says it was. 

He lays out his thoughts for TheStreet and breaks down what the CARES package means for the airlines. 

Watch the full video above for more.

Video Transcript:

Katherine Ross: Major airlines have been hit hard by the Coronavirus pandemic with many having to cut down on domestic travel and make severe cuts to international travel. So was a bailout inevitable? Joining me to weigh in is Scott Wagner, partner of Bilzin Sumberg. Scott, was an airline bailout inevitable as you said?

Scott Wagner: Katherine, I think it was. For this economy to get started again, people need to start traveling and moving around the country. And we have four airlines that account for almost 80 percent of the domestic market. And if even one of them went out of business it would have a severe impact on the ability of people to travel. And so, the airline industry was certainly one of the industries that needed to be part of the bailout package. And that says nothing. The industries that are tangential to the airline industry and all the jobs that come with it.

Katherine Ross: Can you lay out what was been laid out for the airlines so far?

Scott Wagner: So for the passenger airlines, they've gotten 50 billion dollars. And 25 billion of that is essentially earmarked to cover salaries for airline employees. Pilots, you know, people that work on the runways, the baggage guys, flight attendants. And the other 25 billion dollars is in the form of loans to the airlines. But they'd be able to tap in order to get needed capital to stay running and probably again to build up. Once we're all out to leave our houses and start moving around the country again. I think it's also to keep the airlines flying. There are some people that still need to move around the country. We've all seen analytical evidence and social media where there are one or two people on flights, but some of those flights are actually very important and so part of that bailout money is to keep the planes in the air. And I suspect that if there's another package, there will be an additional bailout or additional funds available to the airline industries.

Katherine Ross: Now we know that money, especially a bailout package, doesn't come without any strings attached. So what kind of strings are the airlines looking at? 

Scott Wagner: There are a couple of strings here. One relates to executive compensation. Executives making up to 400 thousand dollars or limited in the amount of raises they can get. There's also a hard cap on compensation for airline executives. No airline executives can make over three million dollars while the low ones are outstanding. One big issue that was included in the CARES act that's effected the airline industry was on stock buybacks. The airlines were very heavily criticized as the discussion around the bailout package was starting for using a lot of their profits over the last several years to do stock buybacks. And so there's also a prohibition on stock buybacks. On the consumer side, one of the requirements for airlines that are participating in the CARES act is that they continue or once travel starts up again, that they reinstate the interservice to lesser served airports to make sure people are still able to get in and out of more remote areas. 

Katherine Ross: Scott, thank you for taking the time to join us today. And for more on the Coronavirus pandemic please head on over to thestreet.com. 

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