Major U.S. airlines accept government aid for payrolls; American also wants a loan

(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 jobs until October while the industry works to overcome its biggest-ever crisis.

Airlines are hopeful that U.S. demand, which has dropped by 95% due to the coronavirus, will begin to recover by October but have warned that the slowdown in air travel could extend into next year and even longer. It is possible 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 U.S. airlines – American Airlines Group Inc (AAL.O), United Airlines Holdings Inc (UAL.O), Delta Air Lines Inc (DAL.N), Southwest Airlines Co (LUV.N), JetBlue Airways Corp (JBLU.O) and Alaska Airlines (ALK.N) – 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% of the funds awarded to large carriers and warrants equal to 10% of the loan amount. Two officials said the warrants are priced at last week’s closing share price.

American Airlines said it would receive $5.8 billion in grants and would need to repay $1.7 billion. It also plans this week to apply for a $4.75 billion loan from Treasury.

Southwest Airlines said it had agreed in principle and expects to receive $3.2 billion in grants and will need to repay nearly $1 billion over 10 years. Southwest will issue 2.6 million warrants to the Treasury. JetBlue Ariways said it will receive $935.8 million in payroll grants.

United was eligible for about $6 billion, Delta about $5.6 billion and Alaska $1.2 billion, but they did not disclose on Tuesday how much they would receive.

Spirit Airlines Inc (SAVE.N), a low-cost carrier which was not listed by 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 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% 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.”

U.S. passenger airlines can also apply for a separate $25 billion loan scheme under the government’s $2.3 trillion stimulus package, known as the CARES Act, and had lobbied for the payroll relief portion to be free cash. American is seeking funds from that $25 billion loan program.

“I strongly believe what Congress laid out in this provision of the CARES Act – to put workers first – should be the model for any industry-specific relief going forward,” U.S. Representative Peter DeFazio, chair of the House Committee on Transportation and Infrastructure, said in a statement.

Estimated global airline losses from the coronavirus pandemic have climbed to $314 billion, 25% more than previously forecast, the International Air Transport Association (IATA) said on Tuesday, owing to the severity of the economic downturn and a slower than previously expected reopening of international routes.

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 in a series of coordinated meetings around the world.

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