Airline stocks are set to surge after the 'big 4' accepted more than $15 billion in government bailouts
- Shares in the "big four" US airlines jumped in pre-market trading on Wednesday after they accepted government bailouts to avoid layoffs during the novel coronavirus pandemic.
- American Airlines jumped 8%, Southwest Airlines gained 7%, United Airlines rose 6%, and Delta Air Lines climbed 5%.
- The carriers initially resisted requirements to repay 30% of the grants and hand over warrants equal to 10% of the loan portion, which the US government can convert into stock in the future.
- Delta is set to receive a total of $5.4 billion, Southwest anticipates $3.3 billion, and American expects to receive $5.8 billion and apply for a separate $4.8 billion loan.
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Shares in the "big four" US airlines surged in pre-market trading on Wednesday after the quartet accepted government bailouts to help them retain workers during the novel coronavirus pandemic.
American Airlines soared 8%, Southwest Airlines climbed 7%, United Airlines jumped 6%, and Delta Air Lines rose 5%.
Investors sent their stocks higher as they expect the payroll grants - which are part of the $2 trillion stimulus package passed by Congress last month - to keep them operating this summer despite immense challenges. Delta's CEO said this month that the airline is burning $60 million in cash each day, and demand has plummeted 95%.
The carriers initially resisted some of the terms of the relief. They bristled at having to repay 30% of the grants and hand over warrants - which can be converted into stock in the future - to the government equal to 10% of the loan portion.
Accepting the bailout also restricts their ability to lay off staff, cut service routes, buyback stock, pay dividends, and reward executives in the coming months.
Three of the "big four" airlines have outlined their bailout deals in principle (United hasn't yet published the terms of its agreement):
- Delta expects to receive $5.4 billion, including a 10-year loan of $1.6 billion, and will give the government warrants to buy about 1% of Delta stock at $24.39 per share in the next five years. Those warrants could be lucrative if Delta's stock rallies to the $60 it traded at in January.
- American is set to receive a $4.1 billion grant and a $1.7 billion loan, and plans to apply for a separate $4.8 billion loan from the US Treasury.
- Southwest anticipates a $2.3 billion grant and an almost $1 billion 10-year loan, and expects to hand over 2.6 million warrants to the government.
