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10 Airlines Reach Agreement with Government

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10 Airlines Reach Agreement with Government

Old 04-14-2020, 03:25 PM
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Default 10 Airlines Reach Agreement with Government

Airlines, administration reach deal on coronavirus aid package


Lori Aratani and
Ian Duncan

April 14, 2020 at 1:39 p.m. EDT Ten U.S. airlines have reached an agreement in principle to accept $25 billion in grants from the government — a cash infusion the industry hopes will buy it time as it navigates through unprecedented economic upheaval fueled by the coronavirus pandemic.

Treasury Secretary Steven Mnuchin said Tuesday that Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines and Southwest Airlines have all indicated they would participate in the program, part of the $2 trillion economic stimulus program signed by President Trump last month.
“We welcome the news that a number of major airlines intend to participate in the Payroll Support Program,” Mnuchin said in a statement. “This is an important Cares Act program that will support American workers and help preserve the strategic importance of the airline industry while allowing for appropriate compensation to the taxpayers.”

He added that “conversations continue with other airlines regarding their potential participation.”

Mnuchin’s statement did not include details of the agreement. However, individuals close to the discussions, who were not authorized to speak publicly, said under the terms of the deal 70 percent of the money would be given to the airlines outright and 30 percent would have to be paid back to the government. In addition, the government would be given warrants equal to 10 percent of the amount the carriers receive, these individuals said.

Separately Tuesday, the Transportation Department announced how it plans to distribute $10 billion in funding for airports, which are suffering alongside the airlines. Much of the money will go to the biggest hubs, but even small airfields will get some aid.

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The aid package for the airlines is being overseen by the Treasury Department. Airlines have been eager to receive the dollars, and after a weekend of back-and-forth between carriers and the administration, Mnuchin signaled Monday that a deal was close. Negotiations have been ongoing since April 3, when more than a half dozen carriers submitted applications for the money.

“Even though this process was neither easy nor perfect, it is critically important that in the end there are agreements in place that put workers and families first by keeping hundreds of thousands of airline employees — from flight crews to baggage handlers — on the payroll during this extremely tumultuous period for the U.S. economy,” Rep. Peter A. DeFazio (D-Ore.), chairman of the House Transportation Committee, said in a statement.

“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,” DeFazio said.

U.S. airlines begin negotiations for coronavirus aid under the Cares Act

“It is welcome news that most of the nation’s largest passenger air carriers have indicated that they will accept the payroll assistance included in the Cares Act,” said Sen. Roger Wicker (R-Miss.), chairman of the Senate Commerce Committee. “This assistance will help keep pilots, flight attendants, gate agents and mechanics in their jobs during the tremendously difficult time for the air transportation industry, and it will provide vital relief until demand for air travel returns.”

Mnuchin said the Treasury Department is also working to quickly review and approve applications for smaller passenger air carriers “as quickly as possible,” and would provide additional guidance for cargo carriers and contractors soon.

“We look forward to working with the airlines to finalize the necessary agreements and disburse funds as quickly as possible,” he said.

The deal comes despite earlier objections from airlines, unions and some Democratic lawmakers to the administration’s plan to impose conditions on the payroll grants. Mnuchin signaled early on that the administration would demand an equity stake in airlines in exchange for providing aid.

On Sunday, Sara Nelson, president of the Association of Flight Attendants-CWA, blasted the administration’s plan to require airlines to pay back a portion of the money.

“I should be clear that if this stands, job cuts will happen now AND longer term cuts will come in October,” Nelson said on Twitter. “This is absolutely stealing from the money Congress allocated directly to workers.”

As covid-19 cases mount, flight attendants grow increasingly fearful of flying

The Cares Act included $29 billion in grants to airlines for payroll support — $25 billion to passenger carriers and $4 billion to cargo operators. In addition, the legislation provides $25 billion in loans or loan guarantees.

Airlines are eligible to receive payouts equal to their payroll costs between April and October of last year. That puts Delta and American in line to receive a maximum of almost $7 billion each, with an additional $6.5 billion for United, according to data published by the Transportation Department. Southwest could get up to almost $4.3 billion; JetBlue and Alaska are each in line to see more than $1 billion each.

Coronavirus bill would provide $114B to prop up faltering transportation networks

But airlines may not see the full amount they are seeking because the $31 billion in total wages and benefits paid by airlines in those six months exceeds the $25 billion allotted to them in the bailout package. In that instance, the Treasury Department is allowed to reduce the individual awards if the fund comes up short, according to an application form released earlier this month.

Southwest Airlines for example said it would receive $2.3 billion in direct payroll support and a nearly $1 billion, 10-year low-interest loan that could be repaid at anytime before maturity at par. The loan also is expected to include approximately 2.6 million warrants issued to the Treasury Department.

“We are extremely appreciative of the work of our federal leaders. President Trump, Secretaries Mnuchin and [Elaine] Chao, and the entire United States Congress recognize the unprecedented health and economic crisis that our nation is currently facing due to COVID-19, as well as the importance of airlines to our overall national economy, the supply chain, and the nation’s future recovery after this crisis subsides,” Southwest chief executive Gary Kelly said in a statement.

In a letter to employees, American Airlines chief executive Doug Parker and its president, Robert Isom, said the carrier would receive $5.8 billion in assistance— $4.1 billion in grants and $1.7 billion in loans. In addition, they said the airline would apply for a separate loan from the Treasury Department of approximately $4.75 billion.

“This is fantastic news for the American Airlines team,” Parker and Isom wrote. “With this level of assistance, we now believe we have the financial resources necessary to help us withstand this crisis and be in position to serve the traveling public when they are ready to start flying again.”

The airline industry pushed hard for an aid package, citing dramatic drops in air travel fueled by government-imposed travel restrictions and stay-at-home orders designed to stop the spread of the virus. They said without the money, they would be forced to lay off thousands of workers.

Unions representing pilots, flight attendants, maintenance workers and others also launched an aggressive campaign in support of the legislation, emphasizing the money would go directly to employees, not executives or shareholders.

Even so, airline chief executives warned the next few months could be bleak.

Earlier this month, Delta Air Lines chief executive Ed Bastian told employees that second-quarter revenue at the Atlanta-based carrier will probably be down 90 percent and that without more cost-cutting and efforts to raise new financing, the government money would be gone by June.

Amtrak receives $1 billion in federal relief funds

According to data provided by Airlines for America, carriers have idled more than 2,200 planes, more than one-third of their fleets, with more groundings planned. In some cases, cancellations have far outpaced the number of new reservations.

In a call Tuesday, the International Air Transport Association estimated that carriers would lose $314 billion in revenue in this year. That’s a 55 percent drop.

U.S. carriers directly employ roughly 750,000 workers, according to Airlines for America.

Airlines that receive the grants would be barred from furloughing workers until Sept. 30, and could not issue dividends or buy back their stock until late 2021. They also would be required to maintain service levels as far out as 2022 — a condition that has brought pushback from some carriers that argue it does not take into account services that run only seasonally.

Meanwhile, some airports have objected to conditions outlined by the Transportation Department that would allow airlines to consolidate some routes, saying that could hamper the ability to get personnel or supplies to areas in need of aid.

The $10 billion package dedicated to airports is designed to compensate them as passenger numbers have plummeted. In exchange, airports getting the money have to keep 90 percent of their workers employed.

Transportation Secretary Elaine Chao said the money will “fund the continued operations of our nation’s airports during this crisis and save workers’ jobs.”

The funds are allocated based on airports’ passenger numbers in 2018, their debts and their financial reserves.

While thousands of airports stand to benefit, half the money is to be distributed among 32 large airports. Atlanta’s Hartsfield-Jackson International Airport, the world’s busiest, will get the largest share at $338 million.

In the Washington region, Dulles International Airport is in line for $143 million, Baltimore-Washington International Marshall Airport will get almost $88 million and Reagan National Airport will receive about $86 million.

Airports have to file grant applications before receiving the money.
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