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Shares of the ‘Big 4’ U.S. airlines surged in pre-market trading on Wednesday after they accepted the government coronavirus bailout. United Airlines, American Airlines, Delta Air Lines, Southwest Airlines stocks have all risen by average 10% but are falling now.
The Big 4 U.S. airlines stocks jumped by nearly 10% on Wednesday, April 15, after they accepted more than $15 billion in government bailouts. The bailout is set to assist the airlines to avoid layoffs during the ongoing coronavirus pandemic. The four airlines include American Airlines, Inc. (NASDAQ: AAL), United Airlines, Inc. (NASDAQ: UAL), Delta Air Lines, Inc. (NYSE: DAL), and Southwest Airlines Co. (NYSE: LUV).
In the pre-market, the shares of American Airlines rose by 10%, those of United Airlines jumped by 9% while those from Delta Air Lines and Southwest Airline rose by 7%. According to the experts, the carriers had initially resisted the set requirements by the government to qualify for the bailout.
But the stocks of all big 4 U.S. airlines are falling now. At the time of writing, the AAL price is $11.69 (-2.13%), the UAL price is $30.13 (-2.49%). DAL and LUV are trading at $23.48 (-4.32%) and $32.57 (-6.35%) respectively.
For them to qualify, they are required to repay 30% of the grant and besides that, they are to hand over warrants equal to 10% of the loan portion. In addition, after accepting the bailout, the airlines are restricted from laying off their staff, their ability to buy back stock, pay dividends and are also restricted to rewarding executives in the coming months.
The United States government is planning to convert the warrants and the repayment into stocks in future from the airlines.
Details of the Big 4 U.S. Airlines Bailout
Delta Air Lines is set to receive $5.4 billion from the government. In addition, the airline will get a $1.6 billion 10-year loan. The company will give the U.S. government warrants to acquire approximately 1% of the stock at an average price of $24.39 in the next five years.
Delta CEO Ed Bastian stated:
“The funding, along with self-help measures we have taken, will prevent furloughs and pay rate reductions through the end of September, despite the 95 per cent drop we’ve seen in passenger traffic. These steps, taken together, are vital to protecting Delta’s future over the next several months as we operate a minimal schedule to provide essential services for those who must travel.”
American Airlines is expecting to receive $5.8 billion, in addition to a $1.7 billion loan. However, the company plans to apply for a separate loan from the U.S. treasury amounting to $4.8 billion.
On the other hand, Southwest Airlines is anticipating to receive a $2.3 billion grant from the U.S. government. The airline will also get approximately a $1 billion 10-year loan from the U.S. government.
The bailout is a good breathing space for the short term, but the long term remains at stake. “This law does not solve the long-term problems that the coronavirus pandemic is creating but it buys us some much-needed breathing room,” explained JetBlue’s CEO Robin Hayes.