Airline firms do layoffs after taking bailout money

Airlines and contractors doing business on their plays were offered bailouts if they didn’t do any layoffs. However, there’s apparently a big loophole that some contractors are taking advantage of. These airline firms are not only taking the bailout money but also doing layoffs.

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q2 2020 hedge fund letters, conferences and more

Airline contractors take bailout funds after layoffs

Pro Publica identified the glaring loophole, which at least three airline contractors appear to have taken advantage of. The airline contractors did their layoffs first and then took the bailout money. The news outlet reports that Gate Gourmet, Flying Food Fare and G2 Secure Staff all seem to have benefitted from the loophole.

Relying On Old-Fashioned Stock Picking, Lee Ainslie Reports His “Strongest Quarter” Ever

Lee Ainslie's Maverick Fund USA enjoyed its "strongest quarter in the fund's history" during the three months to the end of June. According to a copy of the firm's second-quarter letter to investors, which ValueWalk has been able to review, Maverick Fund USA gained 18% in the second quarter. Following this performance, the fund was Read More


The airline bailout money was part of the Payroll Support package that was included in the Payroll Protection Program aimed at small businesses. However, the Payroll Support package allowed larger businesses, specifically, airlines and their contractors, to get assistance in the form of grants and low-interest loans.

The point of the Payroll Support program is to protect jobs by enabling airline companies to keep paying their employees even though air traffic has plunged, and there isn't enough work to keep everyone employed. The U.S. Treasury is disclosing how much money it expects to give to each company that signed a deal. The bailout funds are paid out on a rolling basis.

How the loophole in the airline bailout aid allowed for layoffs

The amount each company receives in Payroll Support aid is calculated based on payroll costs between April and September 2019. According to Pro Publica, officials expected airline companies to sign agreements with the Treasury right after lawmakers passed the CARES Act in March. They would then be barred from doing any layoffs through September because the government would be paying their payroll.

Pro Publica reports that Gate Gourmet didn't sign its agreement with the Treasury until June 19. The company filed its application in early April, however. In the months between when the application was submitted and the date when the company signed its agreement, it reported a number of layoffs in state filings. Data posted on LinkedIn states that the company has 27,000 employees around the globe.

The problem is that the bailout money the company received was based on their payroll long before the pandemic started. Gate Gourmet laid off employees and then took the bailout funds that were meant for a much larger workforce and used them for payroll on a much smaller workforce. Instead of saving jobs, the program is enabling companies to pay a much smaller number of employees even more money than they usually get paid.

The other two companies identified by Pro Publica, Flying Food Group and G2 Secure Staff, are slated to receive $85 million and $81 million in government aid, respectively.

United plans to lay off employees

United Airlines and American Airlines signed deals under the Payroll Support program in April. Major airlines have not done any layoffs yet after receiving bailout money, although United now says it will probably do so. Many have been concerned that the big airlines will start laying off workers after the deadline is past. Under the terms of the Payroll Support program, they've been barred from doing layoffs before Oct. 1.

Now United appears to be the first airline to accept bailout funds and also officially announce layoffs. The airline warned employees this week that demand for travel is declining again as new COVID-19 cases surge again.

According to The Wall Street Journal, United said in a presentation to employees that new bookings started to decline almost as soon as New Jersey, New York and Connecticut said that travelers from states with coronavirus spokes would have to self-quarantine for two weeks.

In the presentation, the airline told employees to expect their layoff notices in early to mid-July and a final notice about the status of their position in early August. Most companies are required by law to provide a 60-day notice to employees of mass layoffs where possible.

An early August notice would mean that United employees will be laid off right after the airline is allowed to stary doing layoffs again after receiving the bailout money.