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Will a US airline bailout come with serious strings attached? –



The coronavirus outbreak is rampaging across the balance sheets of airlines around the world, as countries close borders, people shelter in place, and travel grinds to a halt.

In the United States, carriers are looking to the federal government for immediate assistance to help cushion the blow that the pandemic has delivered to the industry.

Hundreds of thousands of jobs are directly on the line, the US airline trade body – Airlines for America – has said, as are millions of other jobs tied to the industry.

The White House is proposing a $50bn bailout in the form of secured loans. “No one can be blamed for this,” President Donald Trump said during a news conference on Wednesday, defending his administration’s plan to save airlines. “We went from full planes to, boom, empty.”

But many are questioning why – after an 11-year economic expansion – US carriers are not in a better financial position to weather the coronavirus storm. And a growing chorus of voices – from unions to politicians – are demanding that any bailout package airlines receive ensures that it is not just shareholders and executives who dictate how the funds are spent.

Others want industry-wide reforms to boot. But some free-market economists say the government needs to focus on the public health crisis first, and that if the airlines cannot compete, they should just be allowed to go bankrupt.

‘Uncharted territory’

An analysis by Bloomberg found that between 2010 and 2019 the biggest US airlines spent 96 percent of the money they had left over after covering expenses and capital expenditures buying back their own stock.

Stock buybacks are heavily criticised because they do nothing to boost productivity and effectively serve as stealth dividends that enrich shareholders and the pay packages of executives who are compensated in part by stock. 

As bailout talk intensifies in Washington, the blowback against buybacks is turning decidedly bipartisan.

On Thursday, Trump told reporters he would be “OK” if the $1 trillion-plus stimulus bill under discussion on Capitol Hill bans firms that receive bailouts from using government funds to buy back their own stock or pay executive bonuses.

Earlier this week, Trump’s polar opposite on the political spectrum, self-described democratic socialist, New York Congresswoman Alexandria Ocasio Cortez, also called to prohibit stock buybacks with bailout money. 

And preventing airlines from using taxpayer money on such shenanigans is not just a focus for politicians. Airline workers want those restrictions too. And they want any aid package to put the needs of employees front and centre.

Sara Nelson, international president of the Association of Flight Attendants has said that while Congress must protect flight attendants’ paycheques, she believes “any stimulus funds for the aviation industry must come with strict rules”, including maintaining pay and benefits for every worker and “no taxpayer money for CEO bonuses, stock buybacks or dividends”.

Joseph G DePete, international president of the Air Line Pilots Association (ALPA) also told Al Jazeera that legislative or regulatory proposals to stabilise the aviation industry must address labour concerns.

“Airline pilots have already been furloughed as a result of COVID-19,” DePete said in a statement. “More furloughs will surely follow if we fail to address this challenge as partners.”

‘Keep this industry alive’

A 2019 Gallup poll found that 23 percent of Americans have a negative view of airlines. Viral videos like the now infamous 2017 clip of a passenger being dragged off an overbooked United Airlines flight after he refused to give up his seat have only reinforced opinions that airlines put profits before people.

On a global scale, US airlines fare poorly in customer experience rankings. Not a single US carrier managed to crack the top 35 list of the world’s best carriers compiled by Skytrax last year.

Many blame an inherent lack of competition among US airlines following a wave of mergers that has left only a handful of carriers controlling the market.

But analysts say that for all its flaws, the airline industry is still a vital component of the US economy and should not be allowed to go under.

“We need to ensure that our infrastructure is not destroyed by this pandemic,”  said Mike Boyd, president of aviation forecaster Boyd Group International. “We must keep this industry alive, and it will die without a bailout,” he told Al Jazeera.

Clifford Winston, an industrial and transportation economist at the Brookings Institution, says a bailout is warranted, but it should only happen if accompanied by major reforms to the aviation sector.

“We went through this during September 11th and the Great Recession when the airlines had trouble,” said Winston. “It’s a familiar theme with this industry.”

“The hope was they’d be able to respond better during a recession, but there are still a lot of inefficiencies,” he told Al Jazeera.

While Winston agrees that the airlines are not responsible for the black swan that is the coronavirus pandemic, he says that opening up US airlines, airport and air traffic control markets would inject some much-needed competition into the industry.

“If they just take this naive approach of transferring funds, [the government] is missing the opportunity to provide broad benefits in the long run,” said Winston, adding that “the real loser is us, the flying public”.

But some economists believe talk of a bailout should wait until the public health crisis of coronavirus is under control.

“Airlines can go into bankruptcy and continue to fly,” said Veronique de Rugy, a senior research fellow at George Mason University’s Mercatus Center. “You can bail out the airlines, but if people aren’t going to fly, it’s not going to make a difference,” she told Al Jazeera.

In the long run though, de Rugy believes airlines could even benefit if the taxpayers do not come to their rescue.

“It’s better to let the airlines go bankrupt and figure things out,” said de Rugy. “Let them become more effective and better fit to serve consumers on the other end.” 

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Mortgage rates are rising in Canada despite virus-relief cuts –



Canada’s mortgage rates are creeping up — even though the country’s central bank has slashed borrowing costs to combat the COVID-19 pandemic.

That’s due to the “enormous pressure” Canadian banks face amid disruptions caused by the outbreak, said Sherry Cooper, chief economist at Dominion Lending Centers.

“The costs of funds for banks is skyrocketing and bank earnings are plunging,” Cooper said Monday in a phone interview. “Every single business they have ever loaned to is subject to a massive decline in revenues, and therefore their own revenues are going down because nobody is taking out new business with banks except to extend debt.”

The Bank of Canada has cut its overnight interest rate three times this month, bringing the benchmark to 0.25 per cent. The large Canadian banks matched those moves by cutting their prime rates, which influence borrowing rates for variable mortgages and credit lines, to 2.45 per cent from 3.95 per cent at the start of the month.

As those rates have dropped, banks have been eliminating discounts off prime on variable mortgages. At the start of the month, qualified borrowers could get a rate of prime minus 1 per cent from HSBC Canada, for example, while Canada’s large domestic lenders were also offering “prime minus” deals as well.

But those discounts have shrunk by 75 to 85 basis points, said Rob McLister, founder of mortgage comparison website

Funding Costs

Typical five-year fixed rates at also rising. Rates at large Canadian bank are now at 2.99 per cent to 3.04 per cent versus around 2.49 per cent to 2.59 per cent at the end of February, McLister said.

“The big banks are leading the charge higher here, on both the fixed side and the variable side,” he said. Preferred borrowers can still get some prime minus deals at big banks, but they’re more like prime minus 10 or 15 basis points.

McLister said the rising cost of short-term funding, used for variable mortgages, explains the jump. Spreads are wide, fewer people want to lend big banks money at preferable pricing, so that gets passed through to the borrower, McLister said.

Fixed-rate mortgages, which are tied more to swings in the bond market, are also creeping up after Canadian bond yields hit record lows earlier in the month, added Cooper.

“The banks just can’t afford to price their loans at what are de minimis bond yield levels,” Cooper said.

She expects banks to start charging prime plus a premium for variable loans, as well as higher rates for fixed mortgages than those seen earlier in the year.

“I believe mortgage rates will trend around current levels,” Cooper said. “I don’t think interest rates in general are going to be a lot higher in the next year.”

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Air Canada to reduce workforce by 16,500 as it parks planes during COVID-19 – Financial Post



Air Canada will send home 15,200 unionized employees and 1,300 managers due to the “unpredictable extent and duration” of the COVID-19 pandemic.

Canada’s largest airline announced Monday it will place the unionized members on off-duty status and furlough the managers as it reduces capacity by about 85 to 90 per cent from April through June. It intends for the cuts, which will come into effect on or about April 3, to be temporary.

“To furlough such a large proportion of our employees is an extremely painful decision but one we are required to take given our dramatically smaller operations for the next while,” Air Canada chief executive Calin Rovinescu said in a statement.

“I understand and regret the impact this will have upon our employees and their families.”

Rovinescu and chief financial officer Michael Rousseau will forgo 100 per cent of their salaries, while other senior executives will take a 25 to 50 per cent pay cut. Board members agreed to a 25 per cent pay cut. Other managers’ salaries will be reduced by 10 per cent.

On Monday, Prime Minister Justin Trudeau announced the government will subsidize 75 per cent of wages for companies that lose 30 per cent of their revenue during the shutdown. It’s not yet clear how Air Canada could benefit from this, but the airline said it will assess how the subsidy could affect its workforce reduction plans.

Trudeau also acknowledged the airline industry has been “extremely hard hit” by the pandemic and said the government will do more to help the industry, but did not reveal any details.

The prime minister and senior government officials have been working with Canada’s major passenger airlines as they seek help during the crisis. Ottawa has already agreed to provide Toronto-based Porter Airlines with $135 million in commercial financing, but has yet to reveal a comprehensive package for other airlines including Air Canada, WestJet Airlines Ltd., Transat A.T. and Sunwing.

To help deal with plummeting revenue, Air Canada is also looking to cut $500 million in costs and capital spending. It will draw down about $1 billion in operating lines of credit for additional liquidity and suspended its share buyback program on March 2.

Air Canada is working with Ottawa to repatriate Canadians abroad. It will continue to operate a select number of flights after April 1, pending further government restrictions, as well as operating cargo-only flights to ensure movement of goods, such as medical supplies.

Air Canada employed about 33,000 people at the end of 2019, according to financial statements.

Air Canada employs about 4,400 pilots. It’s not clear how many pilots will be affected by the decision, but last week the Air Canada Pilots Association reached a deal with the airline to reduce pilot pay, allow pilots to retire earlier and plan for a maximum of 600 redundancies in the coming months.

Pilots placed on furlough will continue to accrue seniority and service and will be recalled in order of seniority, the ACPA said in a statement.

The International Air Transport Association predicts airlines around the world will lose US$252 billion in revenue due to the COVID-19 pandemic.

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Coronavirus: Air Canada to lay off 16,500 workers amid COVID-19 pandemic – Global News



Air Canada will temporarily lay off 16,500 employees starting this week as the airline struggles with fallout from the COVID-19 pandemic.

Effective this Friday, the layoffs of 15,200 unionized workers and 1,300 managers will last through April and May amid drastically reduced flight capacity from the Montreal-based airline.

“To furlough such a large proportion of our employees is an extremely painful decision but one we are required to take given our dramatically smaller operations for the next while,” chief executive Calin Rovinescu said in a statement.

Cineplex, MEC lay off thousands as coronavirus pandemic shutters stores, theatres

The carrier has halted most of its international and U.S. routes in response to the global shutdown.

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States from Sweden to China to the United States have rolled out aid packages for the airline sector over the past month as borders closed and travel demand plummeted amid the spread of the novel coronavirus.

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Air Canada said its cost reduction scheme aims to save least $500 million. It includes a pledge from both the CEO and chief financial officer Mike Rousseau to forego 100 per cent of their salaries, while the rest of the executive team will give up between 25 per cent and 50 per cent.

The company will draw down about $1 billion in lines of credit to provide additional liquidity for a carrier that has a $7.3 billion cash cushion to fall back on — more than the most profitable U.S. carrier, Delta Air Lines.

Leon’s Furniture to lay off nearly 50% of workforce

Leon’s Furniture to lay off nearly 50% of workforce

Earlier this month Air Canada’s flight attendant union said 5,149 cabin crew would be temporarily laid off due to the COVID-19 outbreak. The newly announced layoffs do not include the earlier job reductions.

The pandemic has cost thousands of jobs in the airline sector. Transat AT Inc. has laid off at least 3,600 flight attendants while WestJet has seen 6,900 departures including early retirements, resignations and both voluntary and involuntary leaves.

WestJet said Monday it is cancelling all transatlantic and U.S. routes until May 4, extending its 30-day suspension by two more weeks.

Both Air Transat and Porter Airlines have halted all flights.

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© 2020 The Canadian Press

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