Airlines berate passengers for not knowing all of the rules, yet airlines delayed their COVID-19 relief payments by arguing over conditions stipulated in the CARES Act.
There is now progress. Treasury Secretary Steven Mnuchin says ten U.S. airlines, including the four largest, intend to participate in the Payroll Support Program that will distribute upwards of $25 billion to passenger airlines.
The funds are exclusively to pay employees. Full details are to be confirmed once the deal is finalized. There is a separate $25b allocated for loans to the airlines, as well as payroll support for cargo airlines.
Provisional allocation of $25 billion to airlines based on confirmed amounts and estimated eligibility
Allocation of $25 billion payroll support for U.S. airlines
Over half of the payroll funds, 58%, are to be allocated to three carriers: American Airlines, Delta Air Lines and Southwest Airlines, based on their statements. United Airlines has not specified how much it will receive, but analysts said it was entitled to upwards of $6b.
JetBlue CEO Robin Hayes said the carrier was entitled to $1.23b based on the bill’s provisioning of combined second and third quarter 2019 payroll expenses. But JetBlue will end up receiving $935.8 million since every airline will get approximately 76% of their payroll amount, Hayes said.
The partial funding was envisioned in the CARES Act, which explicitly provided only $25b. The act allows Mnuchin to decide the allocation.
“The Secretary shall have the authority to reduce, on a pro rata basis, the amounts due to air carriers…in order to address any shortfall in assistance,” the act says.
In addition to the 10 airlines that Mnuchin said would participate, Spirit Airlines said it was also joining. Four airlines – American, Delta, United and Southwest – will likely end up receiving about 75% of the available funds.
Provisional allocation of $25 billion to airlines based on confirmed amounts and estimated eligibility
Allocation of $25 billion payroll support for U.S. airlines
Adding Alaska Airlines and JetBlue could bring the share to around 83%, leaving approximately $4b to be shared by five smaller airlines: Allegiant, Frontier, Hawaiian, Skywest and Spirit.
The payroll support is split between 70% outright funding airlines do not need to pay back, and 30% low-interest loans.
After the pro rata allocation, JetBlue has 56% of last year’s second and third quarter payroll covered by direct grants, Hayes said. The further payroll support from loans will be paid back starting in October.
Hayes did not say if JetBlue would apply for a loan under the separate allocation of $25b that can be used for general expenses. American Airlines said that in addition to the $5.8b it expects to receive under the payroll provision, it will apply for a $4.75b loan.
Airlines will further issue warrants to the government. That would give the government low single-digit shareholding in the airlines, to be bought based on recent stock prices.
The split between grants and loans angered industry officials who wanted 100% grants.
Sara Nelson, the president of the Association of Flight Attendants, claimed: “Secretary Mnuchin decided to play games with this aid, rather than deliver it in the way Congress intended.” She told CNBC the 30% loan “will lead to airline bankruptcies.”
An unidentified industry executive had a similar claim, telling CNBC: “This is not what Congress approved. The aid was supposed to be $25b in cash grants and $25b in loans.”
The CARES Act does not stipulate $25b in cash. It only calls for $25b in “financial assistance” as Mnuchin directs.
“Financial assistance provided to an air carrier or contractor under this subtitle shall be in such form, on such terms and conditions…as the Secretary determines appropriate,” the act says.
It further states recipients of “financial assistance” may have to “in the sole determination of the Secretary, provide appropriate compensation to the Federal Government.”
Those compensatory measures are at the discretion of Mnuchin. “The Secretary may receive warrants, options, preferred stock, debt securities, notes, or other financial instruments,” the act says.
The initial bailout provision was contentious for over-favoring airlines at the expense of others in the aviation supply chain as well as broader public. The final bill had few conditions, unlike the sweeping requirements Democrats wanted.
Although it seems officials did not win much ground from Mnuchin, they are still receiving large support.
“While I am happy we are receiving this much-needed cash for payroll now, it adds to the significant debt we are taking on as we burn through our cash reserves,” JetBlue’s Hayes said. “We entered this crisis with one of the stronger balance sheets in the industry but we will come out of this with significant debt to pay down.”
Portrait of an airline crew on an airplane
