Tuesday’s Market Minute: Southwest Asks Union Employees For Pay Cuts

Southwest Airlines Co (NYSE: LUV) is asking its employees to agree to pay cuts for the first time through the end of next year. This notion is specific to union employees, and the airline has said is the trade-off to avoiding furloughs and future job cuts. Non-union salaries will already be cut by at least 10% until the beginning of 2022. And the Southwest CEO Gary Kelly is also already foregoing his salary entirely through 2021, with several senior-level executives taking a 20% pay cut.

While it is not news that the airlines as a whole have been one of the hardest-hit sectors throughout the pandemic, it remains unclear when they will see any degree of relief. Airline travel demand remains down 70% compared to a year ago despite receiving federal aid of $25 billion dollars earlier this year. Under the terms of the government package, all airlines were banned from laying off or furloughing any employees until October 1.

As October quickly crept up and federal aid restrictions lifted, the airlines began taking necessary measures to remain afloat. American Airlines Group Inc (NASDAQ: AAL) laid off roughly 19,000 employees and United Airlines laid off about 13,000 employees within the last week.

While another round of stimulus has been in talks, a formal package remains unapproved. U.S. House Speaker Nancy Pelosi even asked the U.S. airline executives on Monday to hold off on further job cuts, promising that relief is on the way. The Southwest Airlines’ CEO has confirmed the company can avoid job losses if these terms are reached within the unions by the start of 2021, also noting “I feel like we have a moral obligation to them.”

Southwest stock remains down about 28% this year, outperforming its airline peers who have on average lost about 50% of their value in the last 8 months.

Link: https://www.yahoo.com/news/tuesdays-market-minute-southwest-asks-142348948.html?.tsrc=daily_mail&uh_test=1_04

Boeing Has Paid Southwest $428 Million in 737 MAX Damages So Far This Year

A 737 Max in Southwest colors in flight
Image source: Boeing

Boeing (NYSE:BA) has paid Southwest Airlines (NYSE:LUV) $428 million due to ongoing issues with the 737 MAX, according to Southwest’s quarterly report filed Monday, a sign of how much the troubled aircraft is weighing on cash flow at the aerospace giant.

The 737 MAX was grounded in March 2019 after a pair of fatal accidents, causing existing operators to scramble to fill their schedules with older planes. Southwest had 34 MAX planes in its fleet at the time of the grounding, and was scheduled to take delivery on 41 additional planes through the rest of the year.

The airline said in its second-quarter regulatory filing that it received $428 million in total cash proceeds from Boeing in the first half of 2020 as compensation for the issues. The two parties late last year reached a memorandum of understanding to compensate Southwest for estimated financial damages, but the terms were confidential at the time.

Boeing burned through $4.7 billion in the first quarter and is expected to report even higher cash burn when it reports second-quarter earnings this week, largely due to the ongoing 737 MAX issues. Southwest is just one customer for the plane, but it is an important one. Southwest has only flown 737s throughout its history, and the airline is responsible for a significant part of Boeing’s 737 MAX backlog.

Boeing hopes to have the 737 MAX recertified to fly before year’s end, but the financial ramifications from the grounding will continue for years to come. Southwest CEO Gary Kelly said on a call with investors last week that the airline intends to renegotiate its future purchases.

“I think the way to visualize the situation with Boeing is that, basically, where we go from here needs to be negotiated, period,” Kelly said. “It’s almost like we don’t have a firm contract for deliveries. So all of that has to be completely reset because Boeing is out of compliance with their contract.”

Link: https://www.fool.com/investing/2020/07/28/boeing-has-paid-southwest-428-million-in-737-max-d.aspx