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No PSP, No Jobs: AAL

25 August 2020 by jbchevrel

American Airlines Group Inc. (AAL) has announced today that it will cut 19,000 jobs at the beginning of October. This is the consequence of (1) the reduced schedule due to COVID (2) the expiration of the federal aid. The 19,000 include furloughs of 17,500 employees and 1,500 management job cuts. An indicative 8,100 flight attendants and 1,600 pilots are concerned. For reference, workforce at AAL will have gone from more than 140,000 before the pandemic, to roughly 100,000 expected in October. To date, airlines have received a total $25B of US federal aid (‘PSP’). Conditions on PSP money prevented airlines from laying off staff until the end of September. PSP had been designed in March. So back then, it was assumed that by the end of September, COVID would be under control and demand for air travel would have, in decent part, returned. As it is clearly not the case, the only way to avoid these cuts are seemingly an extension of the PSP. AAL CDS was little changed following this news, cash was richer (11.75 Jul25s up +75c) in what was a reasonably risk-on session, which has seen the intra-day record high of S&P and the tightest level (322 printed this morning, as can be seen on OTCStreaming) since early March for the XOver index. The 11.75 Jul25s have retraced almost ten points higher in less than a month, from 86% at the end of July to 95.25%, as I write.