Summary
- Treasury Department plans to sell airline stock warrants received during COVID pandemic, providing additional returns for taxpayers.
- Airlines received $54 billion in assistance, with $14 billion needing repayment.
- US carriers are recovering from pandemic, posting net gain of $5.5 billion in second half of 2023.
The US Treasury Department has revealed plans to sell off airline stock warrants received during the COVID pandemic. These stock warrants were received in 2020 and 2021 as part of the state-backed assistance for airlines during the height of the pandemic.
Treasury to sell airline stock warrants
The US government provided approximately $54 billion in financial assistance to beleaguered airlines to help keep them afloat, of which around $14 billion would need to be repaid. During state financial interventions, larger companies typically issue stock warrants to the government – under the terms of this assistance, the Treasury received warrants to purchase stock in airlines, and will now be selling off these warrants at auction starting June 3rd.
Photo: J Hopwood I Shutterstock
According to Reuters, the warrants are collectively worth an estimated $478 million, with many offering rates below current airline stock trading prices. The Treasury has stated that only “qualified institutional buyers, institutional accredited investors, or the issuing airlines” will be eligible to purchase the warrants, adding,
“The proceeds of these sales will provide additional returns to the American taxpayer from the financial assistance and liquidity that Treasury provided to these airlines during the pandemic.”
While the auctioning will begin on June 3rd, interested bidders must submit a complete bid package by May 24th to be eligible. The auction will be conducted with the Treasury’s financial agents, Houlihan Lokey Capital and Loop Financial Consulting Services.
The government also issued a total of $25 billion in low-cost loans to struggling airlines.
In 2020, passenger levels suddenly dropped by 60% as airlines aggressively cut costs and laid off/furloughed staff to stay afloat. As occurred all across the world, the state stepped in with financial aid. The four largest US airlines understandably needed the most help – American Airlines was granted $12.6 billion in assistance; Delta Air Lines received $11.9 billion; United Airlines was handed $10.9 billion, and Southwest Airlines received $7.2 billion. Under the terms of these bailouts, any airline receiving more than $100 million in aid would be required to issue stock warrants to the government.
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Airline recovery continues
With US carriers now recovering (and in some cases exceeding) their pre-pandemic capacity, the state bailouts appear to be a job well done. In the second half of 2023, US airlines collectively made a net gain of $5.5 billion, more than double the $2.2 billion achieved during the same period in 2022. It also ensured that a huge number of jobs under threat during the downturn were preserved.
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Despite record revenues, the airline posted a net loss for Q1.
The country’s largest airline, American Airlines, recently registered its highest-ever first-quarter revenue (despite an overall net loss), as did Delta Air Lines and Southwest Airlines, while United Airlines would have recorded a quarterly profit were it not for the Boeing 737 MAX 9 grounding impacting its operations.
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