Southwest Airlines Hopes to Avoid Breaking a Tradition

No one wants to bust a company tradition, especially one that’s held fast for decades. Dallas-based Southwest Airlines has a couple of well-known ones. Prominently, the airline has remained profitable for each of the 49 years the company has been in business. Another is that Southwest Airlines has never involuntarily furloughed an employee during that same 49 years.

Once the coronavirus hit last month though all bets were off for every airline nearly worldwide, including Southwest. On Tuesday however, the airline announced an agreement in principle with the Department of the Treasury about the general terms expected on the Payroll Support Program (“program”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Under the agreement in principle, Southwest will receive the funding support necessary to protect the jobs of its more than 60,000 employees through at least September 30, 2020, and hopefully never break that 49-year old tradition. Southwest’s primary focus is to keep employees working. Maintaining its tradition is a secondary goal.

The airline’s expected disbursements under the program total more than $3.2 billion, consisting of more than $2.3 billion in direct payroll support and a nearly $1 billion unsecured term loan that is expected to have a 10-year term with low interest rates. That loan may be repaid at any time prior to maturity at par. The loan is expected to include approximately 2.6 million warrants issued to the U.S. Department of Treasury. The program includes certain conditions, such as: prohibitions against involuntary furloughs and reductions in employee pay rates and benefits through September 30, 2020; the elimination of share repurchases and dividends until September 30, 2021; and limits on executive compensation until March 24, 2022. Treasury Secretary Steven Mnuchin said in a news release on Tuesday that a number of other airlines planned to also participate in the Payroll Support Program including, “Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines and SkyWest Airlines.