United Airlines (UAL) is planning to further reduce its schedule and cut costs, saying that federal-government aid does not cover its total payroll expense. The aid represents only about 30 percent of its total costs. Meanwhile, the airline indicated that it could cut jobs after the end of deadline set by the government in the financial aid terms.
The airline will further reduce its capacity to about 10 percent of what had been planned for May at the beginning of this year. It expects to announce similar reductions to the June schedule in the next few weeks.
Oscar Munoz, Chief Executive Officer, and Scott Kirby, President of the airline said in a message to United Airlines employees that the company expects to announce payroll cost cutting options over the next few weeks, including new voluntary leave offerings and voluntary separation programs.
United Airlines said it has now essentially redesigned its network to be down 90 percent while complying with the CARES Act and maintaining connectivity among nearly all domestic destinations. May and June schedule reductions will have direct consequences for frontline employees in terms of total hours worked.
The airline said it has not yet finalized changes to its schedule for July and August. However, it expects demand to remain suppressed for the remainder of 2020 and likely into next year.
United Airlines said it expects to receive the government aid soon that will protect its employees in the U.S. from involuntary furloughs and pay rate cuts through the end of September.
“But the challenging economic outlook means we have some tough decisions ahead as we plan for our airline, and our overall workforce, to be smaller than it is today, starting as early as October 1,” the airline said.
Earlier today, United Airlines said it expects to receive about $5.0 billion from the federal government through the Payroll Support Program, of which about $3.5 billion will be a direct grant and about $1.5 billion will be a low interest rate loan.
In connection with the Payroll Support Program, the airline’s parent company also expects to issue warrants to purchase about 4.6 million shares of UAL common stock to the federal government.
On Tuesday, Major US airlines agreed to general terms with the U.S. Treasury regarding their participation in the Payroll Support Program that will prevent layoffs in the airline industry hit by the COVID-19 pandemic.
President Donald Trump last month signed the $2 trillion coronavirus economic stimulus bill that reportedly includes $25 billion in direct aid to passenger airlines.
The US airlines agreed to the Treasury’s conditions such as prohibitions against involuntary furloughs and reductions in employee pay rates and benefits through September 30, 2020; the elimination of share repurchases and dividends until September 30, 2021; and limits on executive compensation until March 24, 2022.
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