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Airlines want U.S. Treasury to scrap proposal to make some grant money repayable

WASHINGTON/CHICAGO (Reuters) – Major U.S. airlines were urging Treasury officials and the federal government’s outside advisers on Saturday to scrap or revise a proposal that would make part of the $25 billion earmarked by Congress to help keep workers on the payroll repayable in the form of low-cost loans.

FILE PHOTO: Canceled flights are seen on an airport screen as the spread of coronavirus disease (COVID-19) continues, in New Orleans, Louisiana U.S., April 4, 2020. REUTERS/Carlos Barria

Treasury Secretary Steven Mnuchin told the airlines on Friday the government would require them to repay 30{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of the grants in low-cost loans over 10 years — with the first five years at 1{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} interest — before the interest rate would rise. The government is also seeking warrants equal to 10{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of the loan amount.

U.S. airlines have idled more than 2,200 airplanes, a third of the fleet, canceled hundreds of thousands of flights and sought to shore up their balance sheets as travel demand has fallen by about 95{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} because of the coronavirus pandemic.

Airlines, in calls with U.S. Treasury officials and the government’s outside advisers, were making the case that Treasury should not require them to repay a big chunk of grants, in part because the $25 billion is not sufficient to cover the full amount of payroll costs submitted.

Airlines for America, a trade group representing American Airlines Group Inc (AAL.O), United Airlines (UAL.O), Delta Air Lines (DAL.N) Southwest Airlines Co (LUV.N), JetBlue Airways Corp JBLU.N, Alaska Airlines (ALK.N) and others, said Saturday it believes the $25 billion in payroll assistance was “to be only in grants – which is considerably more effective for our employees – and not a combination of grants and loans.”

Under the terms laid out in the statute, companies receiving funds cannot lay off employees before Sept. 30 or change collective bargaining agreements. Mnuchin has authority to demand compensation for the grants but is not required to do so.

Sara Nelson, president of the Association of Flight Attendants union, wrote on Twitter Saturday that if Treasury insists on airlines repaying $7 billion in grants, “job cuts will happen now AND longer term cuts will come in October. This is absolutely stealing from the money Congress allocated directly to workers.”

Congress set aside another $25 billion in loans to passenger airlines, but no action on those is expected until Treasury makes decisions on the grants.

Some airlines were seeking other changes in the terms including ensuring grant funds are paid as a lump sum rather than on a monthly basis.

The Treasury said Friday Mnuchin will not require passenger air carriers that will receive $100 million in assistance or less to provide compensation.

Reuters first reported the terms Mnuchin proposed to carriers.

Treasury said Friday it is working with 12 larger passenger air carriers “to secure appropriate financial instruments to compensate taxpayers.”

Airlines were told they could apply for the amount they paid in salaries and benefits in the second and third quarters of 2019. American Airlines, with the largest number of employees, had said it was seeking around $6 billion.

Reporting by David Shepardson and Tracy Rucinski; Editing by Leslie Adler

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