Carl Icahn has set his sights on JetBlue with his recent $200 million purchase of the airline’s shares this past…
U.S. Airlines Agree to Bailout Terms, Receive Billions from Treasury Department
The United States’ major airlines have agreed to terms on a $25 billion bailout package from the U.S. government. The U.S. Treasury Department says that Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines and Southwest Airlines will participate. The money is primarily intended to prevent job loss for as long as possible.
As the government and the airlines approached a deal, the main issue preventing a closing was whether when, and if, the larger airlines would need to repay some of the money they received. The deal was ultimately structured as part grant and a part loan. The Treasury will also receive warrants to buy stock in the airlines involved to make some of the money back.
“This agreement will fully support airline industry workers, preserve the vital role airlines play in our economy and protect taxpayers,” U.S. President Donald Trump said Tuesday in a press conference. “Our airlines now are in good shape and they will get over a very tough period of time that was not caused by them.”
Meanwhile, Treasury Secretary Steve Mnuchin said that the agreement will “help preserve the strategic importance of the airline industry while allowing for appropriate compensation to the taxpayers.”
American Airlines says it will receive $5.8 billion. $1.7 billion will be allocated as low-interest loans, and the rest will be given in grants. The carrier plans to apply for a $4.8 billion loan under the loan provision legislation.
Delta will receive $5.4 billion, of which $1.6 billion will be loans. Delta will give the government warrants to buy one percent of its stock, valued at $24.39 a share, over five years.
Southwest expects to receive $3.2 billion, including $1 billion in loans. JetBlue will receive $936 million, including a $251 million loan. United and Alaska expect to complete their agreements with the Treasury in the coming days.
“The Payroll Support Program recognizes the extraordinary dedication of our entire team, and importantly, sustains the critical air service being provided by our front-line team members,” Parker said in a statement.
“This is an essential step, but just one of many that will get us through the next several months,” Delta CEO Ed Bastian told staff.
The Treasury Department originally wanted airlines to return 30 percent of their bailout money over the next five years. However, airlines argued that the money allocated from Congress was intended to be allocated as grants, not loans. Airlines that receive up to $100 million in bailout money will not be required to give the government equity stakes or other compensations; out of the 200 applications from U.S. airlines asking for payroll support, most were requesting less than $10 million.
Airlines who receive any payroll support money are prohibited from major staffing or pay cuts until the end of September. Those airlines must also refrain from buying back shares or paying dividends through September 2021 and must agree to limit executive pay until March 2022.
Sara Nelson, President of the Association of Flight Attendants union, called the payout an “unprecedented accomplishment,” but she criticized Mnuchin for delaying the aid and for demanding repayments on assistance.
Meanwhile, Joe DePete the president of the Air Line Pilots Association, which represents pilots at United, Delta, and other carriers, called the Treasury Department of “undermining the intent” of the law, “which will make it harder to stop layoffs and slow the recovery.”
“[The] Treasury is also working to review and approve applications for smaller passenger air carriers as quickly as possible and will provide further guidance for cargo carriers and contractors very soon. We look forward to working with the airlines to finalize the necessary agreements and disburse funds as quickly as possible,” Mnuchin said.
Some airports will receive government assistance as well. Those negotiations are also ongoing, but Dallas/Fort Worth International Airport will receive $300 million, while Dallas’ Love Field will get $53 million, according to Dallas Morning News. The funds will go towards operating costs and debt payments.
The U.S. aviation industry’s bailout was originally approved as part of a larger multi-trillion-dollar stimulus bill intended to keep vital aspects of the American economy running in the midst of the coronavirus pandemic. The stimulus bill included $25 billion in payroll support, $25 billion in loans for passenger airlines, and $10 billion in grants and loans for cargo carriers and aviation contractors. That aid was allocated with strings attached.
“This investment provides some near-term certainty for frontline airline workers so that we can focus on our airline’s efforts to provide critical national security and commerce efforts,” said Dennis Tajer, a spokesman for the Allied Pilots Union, which represents about 15,000 pilots at American. “Keeping all hands on deck to remain stable, strong and ready are ever more important for our nation’s eventual recovery efforts.”
According to industry lobbyist Airlines for America, US airlines have 2,200 aircraft in storage and that passenger volume is down 95 percent year-over-year as of April 9. Global revenues are expected to fall by $314 billion, a 55 percent decline from last year, according to the International Air Transport Association.
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