Airline stocks soar after GOP senators push for $25 billion in additional industry aid

Key Points
  • The senators' backing adds weight to a proposal for additional aid for the ailing airline sector.
  • Congress set aside $25 billion in federal relief for passenger airlines the $2.2 trillion CARES Act in March.
16 GOP Senators back more aid for airlines: Letter
16 GOP Senators back more aid for airlines: Letter

More than a dozen Republican senators on Wednesday backed $25 billion in additional federal aid for the airline industry as a spike in coronavirus cases in the U.S. in recent weeks derailed a nascent recovery in travel demand.

The news sent shares sharply higher Wednesday afternoon. American Airlines' stock closed up 9.5%, after trading as much as 12% higher on the day. United Airlines and Delta Air Lines added more than 4% and 3%, respectively.

The added GOP support increases the likelihood that the funds get included in the next big aid package to help the U.S. weather the impact of the pandemic. More than 200 House lawmakers have already backed the extension, which would preserve jobs until the end of March 2021. The endorsement from GOP senators in the Republican-controlled Senate puts pressure on Senate Majority Leader Mitch McConnell to include the provision in a final aid package. 

U.S. passenger airlines were allocated $25 billion in aid, mostly in grants, that would preserve sector jobs through Sept. 30, but carriers have told more than 70,000 workers that their jobs are at risk after that deadline passes.

Meanwhile, travel demand remains at a fraction of last year's levels and financial losses at airlines are mounting. Executives say a demand recovery to 2019 levels could take years and that appetite for air travel will be limited barring a coronavirus vaccine.

"For these reasons, we support a clean extension of payroll support for passenger air carrier employees included in the CARES Act to avoid furloughs and further support those workers," the 16 Republican senators wrote in a letter, which was seen by CNBC, to McConnell and Senate Minority Leader Chuck Schumer. The letter was signed by Sens. Cory Gardner, R-Colo., Todd Young, R-Ind., Roger Wicker, R-Miss., Marco Rubio, R-Fla., John Cornyn, R-Texas, and Susan Collins, R-Maine, and others.

The senators also urged Congress to consider support for other aviation-related businesses like concessionaires and aircraft producers.

"Such businesses and their workers are uniquely tethered to air travel and have been and will continued to be significantly impacted by the decline in air travel," they wrote.

Boeing shares rose 5.6% on Wednesday while its key supplier Spirit Aerosystems, which makes fuselages and other parts, added nearly 9%.

Many workers already left

Labor unions had been urging Congress to extend the airline aid since June and CEOs of some of the largest U.S. carriers have recently said they back an extension. Chief executives of American and Southwest, have said they have spoken with lawmakers and officials in Washington about the additional aid.

Airline executives have been encouraging their staff to take buyouts or early retirement and have also offered a host of other unpaid or partially paid leaves of absence. Volunteers and shorter schedules have helped lower airlines' labor costs in recent months, generally their largest expense.

Thousands of workers volunteered for the programs. Around 17,000 Southwest employees, about 28% of the company, have applied for leaves of absence or buyouts and the Dallas-based carrier said last month that it doesn't expect to furlough or lay off workers this year.

Southwest employees who opted to separate from the airline "would not be able to return unless they were hired back at some point in the future," said Southwest spokesman Chris Mainz. "But we don't anticipate the PSP extension, if it passes, having any impact to our voluntary packages."

Delta's CEO Ed Bastian last week said 17,000 employees — close to a fifth of its staff — signed up for buyouts or early retirement.

"Each person who has opted to exit voluntarily moves us closer to our goal of minimizing furloughs and positioning Delta to weather the choppy recovery in the months and years ahead," Bastian said in a staff memo last week.

It was not immediately clear from other airlines whether staff would be able to rescind their decision to leave the company if Congress approves the additional aid.