Any uncles working for Americans airlines??

[Tellugodu]

how is the current situation in the company??

American Airlines Warns Of Up To 25,000 Layoffs
 

American Airlines made a dire announcement this week warning 25,000 workers that they may be furloughed or laid off. These staggering numbers represent roughly 20% of the company’s workforce. The airline’s message echoed rival United Airlines’ somber news of telling around 36,000 employees that they could be furloughed starting Oct. 1. 

 

Both airlines, along with their competitors, were dramatically hit hard by the effects of Covid-19. Governments recommended that people avoid unnecessary travel. The overwhelming fear of contracting the dreaded virus made potential passengers stay home. This left the airline industry facing an existential threat to its business. Revenue and profits were significantly impacted. 

American Airlines, along with other major carriers, collectively accepted about $25 billion from the United States government, as part of the multitrillion-dollar stimulus package. The terms called for the companies, in part, to use the funds for retaining workers. The government set forth a specified time period ending on Sept. 30.

 

For a brief moment in time, there was some hope that the industry would rebound and people would start flying again—albeit not nearly at the rate of pre-Covid-19 levels. The much-needed turnaround hasn’t happened, which placed intense pressure on American Airlines to cut costs.

Doug Parker and Robert Isom, the respective CEO and President of American Airlines, wrote in a memo to their employees about the likelihood of the upcoming layoffs. “We hate taking this step, as we know the impact it has on our hardworking team members.” They had hoped that circumstances would change. “From the time the CARES Act was signed in March, we had a stated goal of avoiding furloughs because we believed demand for air travel would steadily rebound by Oct. 1 as the impact of COVID-19 dissipated. That unfortunately has not been the case.” The executives plan to offer employees options other than terminations. “We hope to reduce the actual number of furloughs significantly through enhanced leave and early-out programs.”

 

The severity of the pandemic was hard—if not impossible—to accurately predict. However, many critics of the airlines question some of their business practices that have left them vulnerable to a large decline in business. They claim that raising and maintaining cash for a rainy day has never been an important part of the business plans for airlines “despite their propensity for going bankrupt in hard times.”

Corporate leadership is responsible for making the hard decisions of what to do with their cash flow. The money can be used in a variety of ways. The executive team could think either in the short or long term. One use for the funds is to provide dividends to their shareholders and another is to enact stock buyback programs. These actions serve to take care of their investors, as well as insiders at the company who are richly compensated with company stock and options to purchase shares in the organization. 

American Airlines has “led the industry in spending on share buybacks.”  The company allocated around $11.9 billion toward buying back its stock over the past five years and paid out more than $1 billion in dividends during this same time period. This strategy works well for investors and top echelons who earn a big chunk of their compensation in stock when things are good and the stock price rises in value. When that doesn’t happen, things fall apart very quickly.