Airline Contractor Layoffs after COVID Aid

The coronavirus has significantly hurt ground handling companies because airlines heavily reduced flying in response to anemic travel demand and required fewer services. In August, Swissport agreed to a comprehensive restructuring with creditors and shareholders that included a debt-for-equity swap and a new €500 million ($592 million) long-term debt facility.

Four aviation services companies that took $595 million in federal wage offsets as part of an emergency coronavirus stimulus package last spring have committed to retain all current employees after several were reprimanded by a House investigative committee for violating terms of the aid.

The four ground handling agents — Menzies Aviation, DAL Global Services, Sky Chefs and Worldwide Flight Services (WFS) — employ more than 30,000 people in the U.S. Three other airport service providers — Swissport USA Inc., Flying Food Fare Inc. and Gate Gourmet — rejected requests to refrain from further layoffs until their funds are exhausted.

The commitments follow a staff report revealing that the Treasury Department allowed aviation contractors to fire thousands of workers while still receiving and spending hundreds of millions of dollars in federal funds intended to protect jobs.

Menzies, DAL and WFS never conducted any layoffs during the period in question and reaffirmed they intended to abide by the intent of the program. The report also praised another company, G2 Secure Staff, for acting in accordance with the spirit of the Payroll Support Program (PSP) despite permission by the Treasury Department to use loopholes.

Rep. James Clyburn, D-S.C., chairman of the House Oversight and Reform select subcommittee on the coronavirus crisis, sent letters Oct. 9 to several ground handling companies to demand they stop further layoffs until they have spent all their funding.

Congress created the PSP, part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, to preserve aviation jobs by subsidizing payrolls in exchange for companies keeping workers employed. Airlines received the lion’s share of funding — $25 billion for passenger airlines and $4 billion for cargo airlines — but lawmakers set aside $3 billion for contractors that perform catering, security, baggage and cargo handling, fueling and other services.

“The Trump administration has let companies fire thousands of employees and still receive program funds. I am pleased that following my request, several companies have agreed to halt further layoffs and furloughs until all of the PSP funds awarded to them have been spent,” Clyburn said in a statement. “I urge other PSP recipients to take the same pledge to preserve jobs while spending taxpayer dollars. The select subcommittee will continue to demand that relief funds only be used in a manner consistent with congressional intent.”

Four all-cargo airlines are also in Clyburn’s crosshairs for taking money intended for troubled companies when they were flush with income. He has asked the companies to return $630 million.

• Swissport USA Inc. involuntarily furloughed 3,873 workers between April 3 and July 10, when it executed its PSP agreement. Although Swissport received over $170 million in PSP funds, it did not hire back a single worker once it received aid. Swissport plans to continue spending PSP funds until March 2021.
• Flying Food Fare Inc. laid off 1,516 employees and forced indefinite leaves for 1,521 employees between the time it submitted its PSP application and when it executed its agreement with Treasury. The company received over $85 million under the PSP but did not hire back any workers. Flying Food Fare plans to continue spending its PSP funds into the second quarter of 2021 but expects to lay off at least 125 more employees in the next six months.
• Gate Gourmet laid off 5,040 employees between April and the execution of its PSP agreement in June. It received more than $171 million in PSP support and does not anticipate exhausting those funds until March or April 2021.
• G2 Secure Staff acted like a good corporate citizen, the report said. It furloughed a total of 2,187 employees at 41 airport locations before it knew whether it would be eligible for the PSP. It reduced salaries for all 219 corporate staff, managers and directors, with for four senior executives taking zero pay. After the passage of the CARES Act, G2 instituted a no-furlough policy effective April 1, which the company estimates saved 3,000 jobs. Although the company was under financial pressure while waiting for Treasury to approve its application, G2 refrained from any cuts. After receiving a direct grant on June 12, G2 provided lump sum payments to all of its frontline staff to restore missed compensation based on involuntary hour or schedule reductions over the prior two months. The company also partially restored salaries for corporate staff, managers, directors and executives, although executives continue to work at reduced rates. As of August, its CEO is still not receiving a salary.

The select subcommittee accused the Treasury Department of shoddy oversight of the PSP. Documents uncovered during its investigation show that aviation contractors sought to avoid “unnecessary costs” by terminating employees before executing PSP agreements. The report said Treasury incentivized aviation contractors to game the system.

Treasury undermined the job-retention goals of the payroll assistance in several ways, according to the select subcommittee:

• The CARES Act mandated the Treasury begin distributing payroll assistance within 10 days of the law’s enactment, but it took months to execute the necessary agreements. The delays led at least 15 different aviation contractors to lay off or furlough at least 16,655 employees before the agreements took effect, more than 15% of the existing aviation contractor workforce.
• Treasury permitted layoffs up to the execution date of a PSP agreement, leading companies to “urgently” fire employees before signing agreements. Treasury knew companies were conducting layoffs while their PSP applications were pending but failed to object or require that employees be rehired. Internal emails, for example, show Swissport sought to “furlough or terminate” staff before signing the PSP agreement to avoid “unnecessary costs once the ink is on the paper.” Treasury’s inaction meant many companies paused layoffs for far shorter than the six months Congress intended. Five contractors that received PSP funds in September only paused layoffs for less than one month.
• Treasury permitted companies to spend PSP funds without a deadline — leading many companies to stockpile the money rather than rehire laid-off workers.
• Treasury failed to reduce the amount of financial assistance awarded despite mass layoffs, awarding companies payroll support for jobs that no longer existed. Treasury calculated the amount of assistance awarded to each company based on 2019 payroll figures. Although companies alerted Treasury to significant layoffs prior to finalizing PSP agreements, it failed to lower the amount awarded based on the reduced headcount. As a result, companies received payroll assistance for jobs they already eliminated.

The staff report recommended Congress amend the CARES Act to prohibit layoffs by aviation contractors until all PSP funds are extended and ensure that Treasury expedites the distribution of any additional payroll support funding.

Republicans and Democrats are deadlocked on another round of economic relief that would include targeted support for the aviation industry.