“We are pleased that major air carriers intend to use this important program and for Treasury to use its authority under the Cares Act to provide much-needed financial assistance, while ensuring appropriate taxpayer compensation,” Treasury Secretary Steven T. Mnuchin said in a statement. “Conversations with other airlines continue, and we look forward to finalizing agreements as soon as possible.”
As part of the $2 trillion economic relief package approved by Congress, airlines were eligible to receive more than $50 billion in grants and loans. The $25 billion in grants that passenger carriers applied for earlier this year were part of the Payroll Support Program and were focused on keeping front-line workers, including mechanics, flight attendants and pilots, on the job. Cargo carriers also were eligible to receive $4 billion in grants.
In addition to the grants, passenger airlines were also eligible to apply for $25 billion loans. Mnuchin said he expects other carriers, in addition to the five announced Thursday who have signed letters of intent, to also seek government loans.
The airline industry has been hit hard by the pandemic and while some carriers are slowly beginning to increase service, roughly 2,500 aircraft remain parked and the number of people flying is still far below previous years. The grants and loans offered through the Cares Act are seen as critical to avoiding massive layoffs in the industry.
As a condition of receiving the grant money through the Payroll Support Program, airlines had to agree to a number of conditions, including keeping employees on the payroll through the end of September, maintaining a certain levels of air service as far out as 2022, and limiting stock buybacks and executive compensation. Carriers that receive funds must pay back 30 percent of the what they receive and issue warrants to the government. A stock warrant entitles its holder to buy the underlying stock at a guaranteed price until the warrant expires.
The loan program makes roughly $46 billion available, with passenger airlines, certified repair stations and ticket agents eligible to received $25 billion in loans. Companies that receive the money must follow conditions similar to those required under the grant program.
The Treasury Department’s announcement Thursday did not specify the amount each carrier would receive, but did note that details of the agreements would be posted on the agency’s website within 72 hours after a transaction is completed.
However, American Airlines announced in April that it expected to apply for a loan of approximately $4.75 billion. The carrier received $5.8 billion through the Payroll Support Program, while Frontier Airlines received roughly $205 million, Hawaiian Airlines roughly $292 million, SkyWest approximately $438 million and Spirit an estimated $335 million.