A quick (free 😊
summary that might help clarify some topics raised here:
The CARES Act is a very large and complex bill (Public Law 116-136). We are participating in the Payroll Support Program, Title IV, Subtitle B of the Bill. The Bill delegated powers to the US Treasury Dept. to discuss, agree and implement its details with the airlines.
The first agreement was reached with 10 US Airlines (F9 included). As a reference, the sum of aid represents approx. 76% of the salaries, wages and benefits that were paid during 2Q and 3Q of 2019. As part of the agreement, 70% comes as a direct grant and the remaining 30% in the form of a loan (both loans and loans guarantees are made separately from $29 billion under Subtitle A of the Bill). Like mentioned above, loans accrue interest of 1% above Libor for the first 5 years and 2% for the next 5 years. They may be prepaid at any time prior to its maturity.
The issuance of equity instruments was required by those airlines receiving more than $100 mil in payroll assistance. Airlines were disappointed but this was seen as a necessary compensation to taxpayers by the Secretary of Treasury.
So, in our case, as per our CEO letter, we will receive a total of $204.9m of which $173.4 comes as a direct grant and an additional $31.5m comes as a loan under the terms above (30% of 104.5m which is the amount that exceeds $100m). Stock warrants of valued at 10% of the loan amount will be issued.
The equity instruments to be issued will NOT convey voting rights to the US Treasury. Warrants are securities contracts that give the holder the right, not the obligation, to buy common shares straight from the company at a pre-defined, fixed price. Maturity of warrants should be 5 years but it was not very clear how the taxpayer compensation concern would be addressed in relation to privately owned airlines.
A few other points worth mentioning: the aids are meant to cover payroll and benefits exclusively; limitations on executive compensation shall be held until 3/24/2022; companies shall refrain from imposing furloughs until 9/30; and there shall be no stock buybacks or dividends distribution (if applicable) til 9/30, next year.
And then there is the issue of minimum service continuation “to the extent reasonable and practicable” (CARES Act, Sections 4005 and 4114(b) refer) matter under the Authority of the Secretary of Transport. Should you be interested I’d refer you to the 71 pages DOT Order 2020-4-2, most of which are Appendices A thru C (methodology and covered points). Objections by Allegiant, Spirit, Frontier, Sun Country, and Ravn, and the National Air Carrier Association were addressed in this document.
Just as a reference, here are a few published numbers for other airlines (grant/loan in $mil):
AA, including Envoy, Piedmont and PSA (4100/1700)
Delta (3800/1600)
United (3500/1500)
Southwest (2300/1000)
Alaska (725/267)
Jetblue (685/250)
Of course, there are a whole bunch of matters pertaining fairness, such as the minimum service required for LCCs, the fact that we are employed and receiving $1200 checks that could see better use by unemployed people, etc.
Nevertheless, if you’ve been to high level negotiations and crisis never-ending meetings you will know or have a good idea of how much effort and infinite amounts of work people are putting on to have these rules drafted, negotiated, opposed, agreed to, published etc. This is huge folks.
And thus, I believe we should be really thankful for having a very strong leadership, both in our Management and our union Reps/ALPA. These folks are working non-stop to try and keep our company alive and our jobs out of harm’s way insofar as possible. These are extraordinary times.
Hope this is somewhat useful and I truly hope you all stay safe!