A group of US-based budget airlines has banded together in an attempt to secure $2.5 billion in financial aid from the federal government. The move is being made by carriers trying to protect themselves from the economic impacts of rising fuel prices, which have been a major consequence of the US and Israel’s recent military action in Iran.

Talks between these carriers’ CEOS and key players from the US government and Federal Aviation Administration are said to have commenced last week, with discussions continuing in the days to come. The news comes amid another American budget carrier, Spirit Airlines, enduring a public struggle as it seeks its own financial relief from the US government. Let’s take a look at the key facts and figures behind these developments.

US Budget Carriers Are Seeking Financial Aid

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As first reported last night by the Wall Street Journal, a group of US-based budget carriers, including the likes of Avelo Airlines and Frontier Airlines, has pitched a relief plan to the US government that is valued in the region of $2.5 billion. The publication reports that, if provided with such financial assistance, these airlines would reportedly give “warrants that could convert into equity stakes in the companies” back in return.

The ongoing fuel crisis, which has seen the cost of kerosene skyrocket in response to shortages caused by US and Israeli military action in Iran, is said to have been the driving force behind these airlines putting together this relief pitch. According to the WSJ, the $2.5 billion figure is based on the assumption that jet fuel prices remain above $4 per gallon. Reuters quoted a spokesperson for Avelo Airlines as offering the following statement:

“[Avelo] emphatically agree[s] that a healthy airline industry with strong competition is important ‌to ⁠the US economy, especially during this period of high fuel prices.”

Discussions Will Continue This Week

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Of course, with such large sums of money at stake, at a time when the economy is particularly volatile, such a deal cannot simply be agreed upon overnight. Indeed, talks on the matter are said to have begun almost a week ago, on Tuesday, April 21. They are expected to continue in the days to come.

The serious nature of these discussions, which are reportedly taking place in Washington DC, is also reflected in the seniority and caliber of those involved in the talks. Indeed, the airlines themselves are said to have been represented by their Chief Executive Officers, while, on the side of the US government, Transportation Secretary Sean Duffy has been present. The airlines’ CEOs also met with Bryan Bedford, the Administrator of the FAA.

Reuters notes that budget airlines, in particular, are vulnerable to spikes in jet fuel due to their low operating margins. These margins allow such carriers to offer their passengers the cheapest basic fares possible, with budget airlines then often relying on passengers purchasing ancillary products in order to increase the margins. However, with jet fuel being such a large part of an airline’s expenditure, more assistance is required.

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Could Government Ownership Be The Answer To Spirit’s Struggles?

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These airlines’ attempts to secure federal relief come amid the ongoing struggles of a fellow US-based budget operator, namely Spirit Airlines. The yellow-liveried carrier’s financial difficulties have been widely documented in recent times, but developments in the last few weeks have seen its fortunes take a particular nosedive. Indeed, in mid-April, Spirit was said to be days away from shutting down as its bankruptcy recovery regressed.

As such, it turned to the government for help and sought an emergency bailout in a desperate attempt to offset its debts of more than $2 billion. As the situation developed, the prospect of the government owning 90% of Spirit Airlines emerged, as the carrier closed in on a $500 million aid package. US President Donald Trump is also reportedly considering buying Spirit if the price is right, but, as the carrier fights for its life, we will just have to see.