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Major U.S. airlines accept government aid for payrolls; American and Alaska also seeking loans

(Reuters) – The U.S. Treasury Department said on Tuesday 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 U.S. passenger traffic, which has dropped by 95{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} 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 they will need another round of government bailouts to survive.

Major carriers will receive 70{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} 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 U.S. 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 finalized soon and funds disbursed quickly, it said.

Carriers were told they could apply for the total salaries and benefits paid in the second and third quarters of 2019, 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{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of the funds awarded to large carriers and warrants equal to 10{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of the loan amount that were priced at last week’s close.

Delta said it will receive $5.4 billion in grants, of which $1.6 billion will be an unsecured 10-year low-interest loan that has to be repaid, and will provide the government with warrants to acquire about 1{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of Delta stock at $24.39 per share over five years.

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

Southwest said it had 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 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 about 70{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of budgeted costs through Sept. 30.

Delta Air Lines passenger planes are seen parked due to flight reductions made to slow the spread of coronavirus disease (COVID-19), at Birmingham-Shuttlesworth International Airport in Birmingham, Alabama, U.S. March 25, 2020. REUTERS/Elijah Nouvelage

Alaska said 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 was eligible for about $6 billion but did not disclose on Tuesday how much it would receive.

Spirit Airlines Inc, a low-cost carrier which was not listed by the Treasury as reaching agreement, said 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.”

According to the statute, companies receiving funds cannot lay off employees before Sept. 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 program, Brent McIntosh, told Reuters on Monday that the government had done a “substantial analysis … we believe approximately 70{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} 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.”

Senator Ed Markey, a Democrat, criticized the Treasury’s decision to “require repayment for some of the payroll grants. The Trump administration is unnecessarily endangering jobs.”

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

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Estimated global airline losses from the coronavirus pandemic have climbed to $314 billion, 25{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} more than previously forecast, the International Air Transport Association (IATA) said on Tuesday.

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

Reporting by Tracy Rucinski in Chicago and David Shepardson in Washington; Editing by Matthew Lewis and Sonya Hepinstall

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