March 20, 2020, Washington, DC – Late last night, key Senators released the Coronavirus Economic Stabilization Act of 2020 as part of a comprehensive coronavirus package. The bill provides $58 billion to passenger and cargo air carriers through collateralized loans and loan guarantees from the Department of Treasury’s Exchange Stabilization Fund.
While we appreciate the Senate’s acknowledgement that American businesses need aggressive action from the federal government to weather the direct impacts of COVID-19, this package does not help save the regional airline industry or our 70,000 employees. Simply put, the industry will not survive without immediate help from Congress in the form of direct financial assistance or through unsecured Treasury loans, where portions used to retain the workforce are forgivable.
The package as written does not work for the following reasons:
- The bill was designed to support airlines through loans secured by assets. Regional airlines do not have the same assets that larger airlines have. In many cases, regional airlines lease their fleet. In all cases, regional aircraft do not have the same value as mainline aircraft.
- Even if regional airlines were able to procure asset-secured loans, the unique partner-driven business model of regional airlines means regional airlines rely exclusively on decisions made by major airlines about capacity distribution now and in the future, which unilaterally impacts regional airline revenues.
- The vast majority of regional/mainline partnerships operate under Capacity Purchase Agreements (CPA’s). Here, the major airline sells the ticket and the regional airline does the flying and is only compensated by the mainline – and not the passenger directly – for its work. Under this partnership, regional airlines do not control their own revenue and would have no ability to make needed revenue increases to repay loans used to sustain a workforce not flying.
- Regional airlines likewise have no control over air service decisions. Any loans taken to compensate workers retained during a time of continuous, balance sheet vaporizing flying reductions could not be repaid with no ability to raise revenue or alternate capital in the aftermath to repay them.
- Most regional airlines do not have access to capital markets, because most are not publicly-traded. Regardless, in light of the above revenue-scenario, and because of the highly-publicized deleterious impact coronavirus has had on airline liquidity, banks will not grant sufficient credit lines or reasonably-priced capital.
- Already, COVID-19 related capacity reduction announcements have disproportionately impacted regional airline routes. However, this market-behavior is not unique to COVID-19. Historically, when mainlines are forced to pull back capacity, small community routes operated by regional airlines are the first to go. Under this near-certain scenario, and given the secured loan structure of this relief, regional airlines trying to save their workforce during this unprecedented downturn would lose both their workforce and their at-risk assets.
- While the bill suggests the secretary may require some air service to small communities, these small communities are served exclusively by regional airlines. As written, there would be no regional airline in a position to serve any market, let alone the smallest ones.
Fully two-thirds of today’s US airports are small communities which are exclusively served by regional airlines, and nothing in this bill helps regional airlines survive and retain their workforce. For individual small communities, that’s a big problem. In a state like Senator Shelby’s Alabama, regional airlines make up 76% of departures and over half the enplanements. Regional airlines operate over 60% of the departures in Birmingham, it’s largest city. In Muscle Shoals, Mobile, Montgomery, Huntsville and Dothan regional airlines operate all or the vast majority of the air service. Nationwide, the impacts are even more staggering. Lawmakers must understand that air service does not happen to communities in the aggregate. While air service in high yield, larger cities will return when this crisis passes, fully 570 US airports are served exclusively or primarily by regional airlines who will not last more than six months if this bill does not evolve.
If the regional airlines serving these smaller communities disappear, this air service will not return. Simply put, mainline airlines cannot serve smaller communities on their own. Their airplanes are too large and the unit costs and fuel inefficiencies of sending oversized aircraft with 150 seats or more into communities where forty passengers travel at a time on three or four flights a day simply do not work. This is why major airlines rely on smaller, regional airlines, who use smaller aircraft to serve these smaller markets through partnerships.
While this sounds like bad news for America’s smallest communities, it is also bad for the US economy. In communities served exclusively by regional airlines, air service drives $134B in economic activity a year, 1 million jobs, and $36B in wages and commensurate tax revenues in local economies.
The liquidity crisis COVID-19 has brought for airlines has not been overstated. As a harbinger of what is to come, Trans States airlines announced earlier this week that the decremental impact of COVID-19 would accelerate a carefully orchestrated wind-down and employee outplacement strategy into an abrupt two-week liquidation. Yesterday, Compass Airlines followed suit with an announced liquidation March 31. Between them, these air carriers supported 2,710 direct employees. These employees were a part of our regional airline family.
To be clear, regional airlines are not looking for handouts. Our members finished 2019 in a strong financial position and with solid balance sheets. However, this global pandemic is beyond even the most conservative planning and preparation. At the pace of even today’s flying reductions, liquidity will be exhausted within weeks or months.
The Senate must understand this industry will not survive without immediate help from Congress in the form of direct financial assistance or forgivable loans. Regional airlines would benefit most from direct financial assistance, or alternately, low-interest Federal loans where the portion of funds used to avoid furloughing employees would be forgiven. Not only does this help regional airlines specifically, it does so in a way that centers our workforce.
Regional airlines do not want a bailout. We want help ensuring this unprecedented and devastating crisis does not force the furlough of thousands of workers, which would not only devastate our 70,000 employees, but would permanently alter the landscape of small community air service.
Assistance cannot come fast enough.