You can click the line here for the official American Airlines press release from CEO Doug Parker on the CARES act and how it will affect their operations.
Doug Parker in this statement stated that the company would be taking advantage of the assistance provided by the CARES Act. He also expressed that if they did not receive the assistance that they would be forced to furlough a large portion of their workforce. He also said specifically that there would be some policy changes including enhanced voluntary leave, pay reductions, hours reduction, and early retirement options. He also stated that American might not be able to meet some of the terms for the cash grants and was vague about what specifically that means. He said if they do not take the grants then they would be forced to layoff employees and other cost cutting measures. The company President Robert Isom is planning to reduce his pay by 55% while many of the other senior executives are reducing their salaries by 50%.
The Airlines industry was the only industry to be specifically singled out for assistance in the CARES Act. The Act is planning to provide $50 billion specifically to the Airlines with American getting $12 billion. The money is split between 50/50 with one half being access to loans and the other half being cash grants with some conditions attached to them. Some of these conditions include:
- Dividends and stock buybacks are prohibited only through September 2021.
- Non-union employees making over $425,000 annually in 2019 cannot receive a salary increase until March 2022, yet this may have limited relevancy: a $350,000 salary is considered high at American Airlines.
- That American not involuntary furlough workers as a result of the Coronavirus crisis.
- Golden parachutes are capped at twice 2019 compensation. However, Democrats proposed executives could only receive their 2019 compensation but that wasn’t in the final bill.
Americans approach to the handling the Coronavirus crisis and the accompanying government bailout is leaving something to be desired. The fact that they implicitly threatened the government with laying off large amounts of employees unless they received a generous taxpayer bailout is unethical and comes across as if they are shaking down the taxpayer. Also, they fact that Doug Parker refused to firmly state that no one would loose their jobs signals poor leadership. Finally, the fact that the company hasn’t tried to raise capital through issuing debt or equity while covering expenses with their estimated (Bloomberg) 6 months worth of short term liquidity shows that they have not exhausted all possible options before going to Uncle Sam for help.
That being said the situation is still fluid and American Airlines still has time to adjust their crisis response to make it less offensive to the general public as with every article that is written about their response mentions their recent history of stock buybacks and executive compensation. Perhaps American Executives will read the room so to speak and sooth the public anger by addressing their buyback and
Sources:
Strings attached to CARES act funds
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Hi Alex,
Things become really clear after I reading the third post. There is absolutely no incentives for them to exhaust all possible means – they are getting a nearly-free $12 billion, why should they take any risk to do something crappy? There is no right or wrong from the perspective of capital if a comany choose a profit-oriented way even though they are sending moral blackmails to public, government, and stakeholders. But do we really want to encourage this action? The only purpose is to survive the harsh winter. It is somewhat hard for me to judge whether capital is overweighted than human being, they need to survive. But the reality is that receiving the assitance and take it for granted is the best that the the market chose. That is what I would call it a black humor.
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Hey Alex,
The ethical dilemma is obvious here and well discussed. In times of general crisis, it is easy to see how everyone is doing to survive. Money is often at the center of the solution. This is currently happening with this CARES Act with financial aid. Beneficiaries do not care who is at the expense. We all learned how an immoral manager operates. The focus is on maximizing profits and meeting organizational goals. I feel like that is what is happening at this time of crisis. It is hard to find a moral manager whose standards of behavior meet both compliance and ethical standards.
The world is facing a disaster, and some are taking advantage of it for their personal interests. What world do we live in if everyone is selfish about self-interest or emphasizes profit responsibilities?
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