The Treasury Department said Tuesday that the nation’s major airlines have tentatively agreed to terms for $25 billion in federal aid to pay workers and keep them employed through September.
The assistance will include a mix of cash and loans, with the government getting warrants that can be converted into small ownership stakes in the leading airlines.
The airlines did not want to give up equity, but Treasury demanded compensation for taxpayers. The airlines have little leverage — their business has collapsed as the COVID-19 pandemic reduces air travel to a trickle and they face mass layoffs without the federal aid.
The nation’s six biggest airlines — Delta, American, United, Southwest, Alaska and JetBlue — along with four smaller carriers have reached agreements in principle, and the Treasury Department said talks were continuing with others. Treasury Secretary Steven Mnuchin said the department would work with the airlines to finalize deals “and disburse funds as quickly as possible.”
President Donald Trump — perhaps mindful of criticism that the government was bailing out a previously profitable industry — said the deals will support airline workers and protect taxpayers.
“Our airlines are now in good shape, and they will get over a very tough period of time that was not caused by them,” Trump said.
The payroll aid is roughly based on each airline’s spending on wages and benefits from April through September 2019,
American Airlines said Treasury approved $5.8 billion for the airline, a $4.1 billion grant and a $1.7 billion low-interest loan. CEO Doug Parker called it “fantastic news,” and “we now believe we have the financial resources necessary to help us withstand this crisis.”
Analysts expected United and Delta were also eligible for more than $5 billion. United said it expected to complete a final deal with Treasury “in the next few days,” but gave no figures. Delta did not comment immediately.
Southwest Airlines said it expects to get $3.2 billion, including more than $2.3 billion in cash and the balance in an unsecured loan.
The airlines had expected to begin receiving the aid — entirely in cash that didn’t have to be repaid — from the government to cover their payrolls by April 6, the deadline set by Congress. Instead, they found themselves locked in several days of tense negotiations with the Treasury Department, which insisted that only 70% of the aid should be in cash, with the rest in loans that airlines must repay.
In addition, Treasury demanded that to compensate taxpayers, the largest airlines must turn over warrants that, if exercised, could give the government ownership stakes ranging between 1% and 3%, according to calculations by a Raymond James analyst. Southwest said Treasury will get about 2.6 million warrants, or less than 1% of its outstanding stock. Others gave no details.
The warrants total 10% of the loan amount, and Mnuchin can exercise them at each airline’s closing stock price on April 9, according to airline officials.
The nation’s airlines entered 2020 riding a decade-long hot streak in which together they earned tens of billions of dollars due to strong travel demand. That success came crashing down in just a few weeks, as governments restricted travel to slow the spread of the new coronavirus, and people feared contracting the illness on a plane.
As part of a $2.2 trillion economic-relief package, Congress also approved a separate $25 billion program to provide loans to airlines. Analysts expect less interest because the airlines can tap private credit markets, but American said it plans to seek a $4.75 billion government loan, and Alaska Airlines indicated it too will apply under the separate program.