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Major US Airlines Accept Government Aid For Payrolls

Published on Apr 15 2020 11:34 AM in General Industry tagged: Trending Posts / US Airlines

Major US Airlines Accept Government Aid For Payrolls

The US Treasury Department has said that major passenger airlines have agreed in principle to a $25 billion rescue package, ensuring airline workers have jobs until October while the industry battles its biggest-ever crisis.

Airlines are hopeful that US passenger traffic, which has dropped by 95% due to the coronavirus pandemic, will begin to recover by October, but have warned that the slowdown in air travel could extend into next year and even longer. It's possible that they will need another round of government bailouts to survive.

Major carriers will receive 70% of the funds for payroll in cash assistance that will not need to be paid back, while smaller carriers receiving $100 million or less will not need to repay any funds.

The six largest US airlines - American Airlines Group Inc, United Airlines Holdings Inc, Delta Air Lines Inc, Southwest Airlines Co, JetBlue Airways Corp and Alaska Airlines - as well as four other airlines accepted the support, Treasury said.

Agreements should be finalised soon and funds disbursed quickly, it said.

Carriers were told that they could apply for the total salaries and benefits paid in the second and third quarters of 2019, which is an amount that surpasses American Airlines' current market value.

Under the terms laid out by Treasury officials last week, the government would receive repayment on 30% of the funds awarded to large carriers and warrants equal to 10% of the loan amount that were priced at last week's close.

Delta said that it will receive $5.4 billion in grants, $1.6 billion of which will be an unsecured 10-year low-interest loan that has to be repaid, and will provide the government with warrants to acquire approximately 1% of Delta stock at $24.39 per share over five years.

American Airlines said that it will receive $5.8 billion in grants, $1.7 billion of which it will need to repay.

Southwest said that it has agreed in principle and expects to receive $3.2 billion in grants, and will have to repay nearly $1 billion over 10 years. Southwest will issue 2.6 million warrants to the Treasury.

JetBlue said that it will receive $935.8 million in payroll grants. Alaska and its regional carrier, Horizon Air, will receive $992 million in funding, including $267 million in the form of a loan, that the airline expects will cover approximately 70% of budgeted costs through Sept. 30.

Alaska said that the Treasury will receive the right to buy 847,000 non-voting shares of parent Alaska Air Group at a price of $31.61 per share.

United is eligible for approximately $6 billion, but has not disclosed how much it will receive.

Spirit Airlines Inc, a low-cost carrier which was not listed by the Treasury as reaching agreement, said that it expects "to agree on terms soon" for payroll grants.

"We are closer than ever to almost a million airline workers knowing they will receive their paycheck and keep their healthcare and other benefits, at least through September," said Association of Flight Attendants president Sara Nelson, who is widely credited for the idea of aid specifically for payroll. "At the same time, we were able to rein in the worst corporate practices by tying this aid to restrictions on stock buybacks, executive compensation and dividends."

Statute Rules

According to the statute, companies receiving funds cannot lay off employees before September 30 or change collective bargaining agreements, and must agree to restrictions on buybacks, executive compensation and dividends.

The statute gave the Treasury the authority to demand compensation for the grants, but did not require it.

A Treasury official working on the programme, Brent McIntosh, told Reuters that the government has done a "substantial analysis...we believe approximately 70% of those payments becomes a direct benefit to taxpayers." He cited "avoided unemployment benefits, taxes that come back to the federal government, and the benefits of continued air service."

Criticism

Senator Ed Markey, a Democrat, criticised the Treasury's decision to "require repayment for some of the payroll grants. The Trump administration is unnecessarily endangering jobs."

Separate Loan Scheme

In addition to the grant programme, US passenger airlines can also apply for a separate $25 billion loan scheme under the government's $2.3 trillion stimulus package. American said that, this week, it plans to apply for a $4.75 billion loan under that programme, while Alaska and Horizon intend to apply for $1.1 billion in federal loans.

Estimated Global Losses

Estimated global airline losses from the coronavirus pandemic have climbed to $314 billion, which 25% more than previously forecast, the International Air Transport Association (IATA) said on Tuesday April 14.

The Geneva-based organisation's CEO, Alexandre de Juniac, said that leaving the middle seat vacant was among likely conditions for a resumption of air travel to be discussed with governments.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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