Treasury and Airlines Agree on Terms of Industry Bailout

WASHINGTON — The Trump administration has reached an agreement in principle with major airlines over the terms of a $25 billion bailout to prop up an industry that has been hobbled by the coronavirus pandemic.

The Treasury Department said that Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines and Southwest Airlines would participate. The program is supposed to help the companies pay their workers and was created as part of the economic stabilization package that Congress passed last month.

“We welcome the news that a number of major airlines intend to participate in the Payroll Support Program,” the Treasury secretary, Steven 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.”

Last week, the Treasury Department said it would not require airlines that receive up to $100 million in bailout money to give the government equity stakes or other compensation. The government had received over 200 applications from U.S. airlines seeking payroll support and the Treasury said the majority of those were asking for less than $10 million.

Over the weekend, Mr. Mnuchin negotiated with the larger airlines, which have applied for most of the government funds. The Treasury had been pushing the airlines to agree to repay 30 percent of the money over five years. Airline executives and labor leaders complained that the Trump administration was turning what Congress intended to be grants into loans. The Treasury also has been seeking warrants to buy stock in the companies that take money.

Airlines for America, an industry lobbying group, said that as of April 9, American airline carriers had idled 2,200 aircraft and that passenger volume was down 95 percent from a year ago. The industry expects global passenger revenues to fall by $314 billion this year, a 55 percent decline from last year.

The stimulus, passed late last month, largely incorporated the assistance that the industry had sought, including $50 billion split evenly in grants and loans for passenger airlines and more than $10 billion for cargo airlines and aviation contractors. But the aid came with some strings, including giving Mr. Mnuchin the authority to take an equity stake in airlines that receive the grants.

The Treasury Department determined 70 percent of the grants to airlines would benefit taxpayers through payroll and income tax receipts and by reducing the unemployment insurance payments that the government would have paid to airline workers had they lost their jobs. The remaining 30 percent would not directly benefit taxpayers, and therefore would be repaid as a loan over a period of 10 years, a senior Treasury official said on Tuesday.

The Treasury will also receive stock warrants worth 10 percent of the loan amount that exceeds $100 million.

The official said that the structure of the agreement was a carefully negotiated compromise, as airlines were seeking grants with no repayment and the administration preferred to offer loans. The economic relief legislation also allocated a separate $25 billion specifically for loans to the airlines, but the official said that negotiations with the companies for those funds had not begun. The Treasury is also engaged in negotiations with cargo carriers, which are eligible for $8 billion in grants and loans.

The Treasury has not determined if it will need to ask Congress for additional funds to support the airline industry, the official said.

Airlines that accept the payroll support money are prohibited from major staffing or pay cuts through September. The airlines must also refrain from buying back shares or paying dividends through September 2021 and must agree to limits on executive pay until late March 2022.

In a statement, Sara Nelson, the president of the Association of Flight Attendants union, welcomed the payout as “an unprecedented accomplishment,” but criticized Mr. Mnuchin for delaying the aid and for asking that airlines repay a portion of the funds.

“Now we must fight to keep aviation intact to protect our industry and ensure our economy lifts off again when the virus is under control,” she said. “We have seen what happens when investment bankers like Secretary Mnuchin control the outcomes, and we will not stand by to watch it play out again.”

American Airlines said it would receive $5.8 billion as part of the deal, with more than $4 billion in the form of grants and the remaining $1.7 billion as a low-interest loan. The airline separately plans to apply for a nearly $4.8 billion loan from the department under the loan provision of the legislation.

“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,” American’s chief executive, Doug Parker, said in a statement.

Southwest Airlines said it expected to receive $3.2 billion, about $1 billion of which would come in the form of a low-interest loan. That loan is expected to include about 2.6 million warrants that would allow Treasury to buy stock in the company.

United Airlines and Alaska Airlines said they expected to complete their agreements with the Treasury Department over the next few days. A Delta spokeswoman declined to comment.

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