Holding Patterns

Image source: Kitch Bain, lendy16 - Shutterstock

What's going on?

The US government agreed to give US airlines a $25 billion support package this week, in hopes it’d keep them aloft until their runways are cleared of coronavirus-shaped obstacles.

What does this mean?

American Airlines will get just shy of $6 billion in US government support, while rival Delta Air Lines will receive $5 billion. The idea is that the cash – together with their own cost cuts – will see them through and help protect their employees till around September, by which time airlines are hoping the current travel halt will have been lifted.

The government’s help does come with strings attached, mind you. For one, major airlines will have to repay some of the cash – though admittedly with a low interest rate. For another, the government will take “warrants” in the airlines – which means it’s going to benefit from future rises in their share prices for a while.

Why should I care?

For markets: In for a penny, in for a pound.

Airline companies’ shares climbed early on Wednesday: American Airlines’ initially by 10%, and Delta’s and Southwest’s by 7% apiece. Investors might’ve fancied their stocks for a couple of reasons. First, the aid agreement has now made the immediate future of those airlines slightly more certain. And second, now that the US government effectively has a stake in several airlines, it might be more willing to offer extra support to the industry if coronavirus disruptions last longer than everyone expects.

The bigger picture: A global opportunity.

Airlines elsewhere in the world haven’t been quite so fortunate. Not yet, at least: the French government said it’d help support Air France-KLM in the next few days. Depending on the terms, of course, the potential announcement could give the national carrier’s stock a boost. Norwegian Air’s plan to convert its debt into company shares, meanwhile, might keep it from crashing like the near-bankrupt South African Airlines.

Originally posted as part of the Finimize daily email.

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