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American Airlines to Seek $12 Billion in Government Assistance

By Lou Whiteman - Mar 31, 2020 at 9:25AM

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The money should give the company enough runway to survive until the fall even under the worst scenario.

American Airlines Group (AAL 1.73%) reportedly intends to seek up to $12 billion in government aid through the recently passed relief legislation, enough to prevent layoffs or pay cuts for at least six months.

American is seen as the major airline that's most vulnerable to an extended downturn because of its industry-high debt load. The airline is also responsible for much of the ire directed at the airlines due to its aggressive share repurchasing policies.

An American Airlines tail lit up at night.

Image source: American Airlines.

In a memo obtained by Reuters, company officials said American is eligible for about $6 billion in payroll grants and $6 billion in loans under the $2 trillion economic stimulus package passed last week. That amount, coupled with American's cash reserves, will allow the company to withstand "even the worst of potential future scenarios," CEO Doug Parker and President Robert Isom said in the memo.

American also plans to improve the terms of voluntary unpaid leave and early retirement options for flight attendants and other employees.

The airline industry has been hard hit by the COVID-19 pandemic, which has caused travel demand to evaporate. A Transportation Security Administration (TSA) spokesperson said Tuesday that on Monday, the agency screened 154,080 passengers nationwide, the lowest single day in 10 years. By comparison, on March 30, 2019, the TSA screened 2,360,053 people.

Terms of the government bailout package require airlines that accept payroll grants to do no layoffs before Sept. 30. Last week, American rival United Airlines Holdings said that it will honor that restriction but warned that layoffs would be inevitable if traffic does not return by the fall.

Parker and Isom in the memo said "we certainly hope and expect" that by Sept. 30, "the virus will be contained, Americans will be flying again and we will be back to flying a full schedule."

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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