Wed | Jun 3, 2020

US Treasury wants payback plan from airlines

Published:Thursday | April 2, 2020 | 12:15 AM
Dozens of parked American Airlines planes are parked at the Pittsburgh International Airport, on Friday, March 27, 2020, in Moon, Pennsylvania.
Dozens of parked American Airlines planes are parked at the Pittsburgh International Airport, on Friday, March 27, 2020, in Moon, Pennsylvania.

THE UNITED States Treasury Department wants airlines to say how they will compensate the government for US$25 billion in grants used to keep employees on the payroll during the coronavirus outbreak.

The economic-relief bill passed last week gives the Treasury secretary the power to take an equity stake in airlines that get taxpayer help.

The law provides money for grants and another US$25 billion in loans or loan guarantees for passenger airlines hurt by the severe drop in travel from the outbreak. The number of people going through security checkpoints at US airports has plunged more than 90 per cent from a year ago, and airlines have suspended nearly all of their international flights.

The Treasury Department warned airlines in a document posted Monday night to apply for aid by late Friday or face delays in processing their requests. If they fail to apply by April 27, they could be shut out.

American Airlines said it will seek US$12 billion. Other carriers said Tuesday they were still reviewing the terms. Airline CEOs and unions lobbied Congress and the White House for the grant money, which must be spent on payroll expenses that avoid the need for layoffs.

It was not immediately clear whether the Treasury will go ahead and take partial ownership of the airlines or how big those stakes might be. The Treasury directed airlines to “identify financial instruments to be issued to the secretary that, in the sole determination of the secretary, provide appropriate compensation to the federal government for the provision of payroll support”.

That could include warrants, preferred stock, debt or other options. A key and unresolved issue is the price at which warrants could be converted to stock, according to industry officials.

J.P. Morgan analyst Jamie Baker said the Treasury seemed to be letting airlines set the cost of getting grants, at least initially. Negotiations over terms such as equity stakes are likely to follow, but the cost is unclear, he said.

The money would come with other strings, notably a requirement to avoid laying off or cutting pay for workers through to September, and a ban on airlines purchasing their own stock.

To get government loans, airlines will have to show that other credit isn’t available – potentially a serious obstacle, because the carriers have lined up billions in private credit in recent weeks.

On Tuesday, the Transportation Department made it easier for airlines to comply with another condition of federal aid – that they keep flying to all US airports they served before March 1. They will be allowed to consolidate flights among nearby cities and, in some cases, fly less often.

AP