Some U.S. airlines are preparing to come under part U.S. Government ownership, or should we say, taxpayer ownership, as a condition for receiving government money to help handle the coronavirus airline crisis.
Several airlines have announced that they have applied or will be applying for the government aid under the $2.2 trillion CARES Act (the Coronavirus Aid, Relief and Economic Security Act).
U.S. nationalized airlines
That, in turn, means that some U.S. airlines are becoming partially nationalized for the first time, a practice that has been common in many foreign countries for decades.
How much ownership the U.S. Government will have in U.S. Airlines
After the dust settles, the U.S. Government could own around $1 billion of airline shares, based on current warrant strike prices and share prices.
Here’s the breakdown:
Delta Air Lines government ownership: 1.0%
Reaching a deal to receive $5.4 billion from the CARES Act, the U.S. Government would own 1% of Delta or roughly 6.4 million shares over five years. That’s based on a strike price of $24.39.
Delta’s largest shareholder is Warren Buffet’s Berkshire Hathaway, with a 9.2% ownership of the airline.
American Airlines government ownership: 3.2%
American is expecting to receive $5.8 billion from the government. That would require American to issue warrants, allowing the Treasury Department to buy 13.7 million shares at a strike price of $12.51. The U.S. Government would own 3.2% of American Airlines.
By comparison, Berkshire Hathaway owns 42.5 million shares of American, at a 9.7% stake.
United Airlines government ownership: 7.6%
United expects about $5 billion of government money through the Payroll Support Program (PSP). The airline also has the desire to borrow an additional $4.5 billion through the Loan program of the CARES Act.
Should United take advantage of the full government aid available, the U.S. Government could own 7.6% of the airline or 18.8 million shares.
If United borrows the $4.5 billion the airline would have to issue warrants to buy 14.2 million shares at a strike price of $31.50.
Berkshire Hathaway is United’s second largest shareholder with 21.9 million shares or 8.8% ownership of the airline.
Hawaiian Airlines government ownership: 7.7%
Hawaiian expects to receive $290 million under the CARES Act’s PSP program. That would require the airline to issue warrants giving the U.S. Government 1% ownership in the airline at $11.82 a share.
Hawaiian has also decided to seek a 5-year interest-bearing loan for $364 million under the CARES Act’s Economic Releaf program. To do so, Hawaiian would need to issue warrants t buy 6.7% of the outstanding shares at a strike price of $11.82 per share.
Southwest Airlines government ownership: 0.5%
Expecting more than $3.2 billion in government aid under the CARES Act, along with $2.3 billion in PSP support, the airline is expected to issue warrants for the government to buy about 2.6 million shares. That is about a 0.5% government ownership of the airline.
By comparison, Berkshire Hathaway owns 51.3 million shares of Southwest stock or 9.9%.
Other U.S. airlines
News about Jet Blue and Mesa Airlines does not discuss possible government ownership at this time, but here is what we know:
Jet Blue is expected to receive $935.8 million in aid. The amount includes $685.1 million in direct support and $250.7 million in a low-interest loan.
The airline has not yet revealed the number of warrants it would issue the government in return. Jet Blue says the warrants would be “a limited number to buy the stock at a pre-determined price”. The airline’s outstanding shares as of January 31st was 282.2 million.
Mesa Air Group is expecting $92.5 million in PSP aid from the CARES Act. The condition for PSP aid requires that an airline cannot involuntarily furlough employees or cut employee pay, or eliminate share repurchases or dividends through September 30th.
Mesa is not obligated to issue warrants to buy stock since they only requested aid for less than $100 million. However, the airline is considering applying for loans through a separate program under the CARES Act.
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