$ 25 billion in aid to airline industry stranded as Treasury insists on loans, not cash grants
The Treasury Department missed a deadline to start paying airlines to keep workers employed, and the two sides were still negotiating terms of federal aid on Monday.
The main obstacle is the Treasury’s insistence that part of the $ 25 billion in wage assistance be in the form of loans, not cash.
The deadlock suggests that airlines will have a harder time getting federal aid than they thought. Airlines shares fell on Monday.
The airlines believed they struck a deal last month: Congress agreed to give passenger airlines $ 25 billion in cash grants to cover wage costs for six months.
But Treasury Secretary Steven Mnuchin told CEOs of the six largest airlines on Friday that 30% of the aid would instead be low-interest loans that they would have to repay with securities that could be converted into shares – giving the government a stake in carriers, according to people familiar with the negotiations.
This surprised the airlines.
“We believe the law said that funding (of direct aid) should only be in the form of grants – which is considerably more efficient for our employees – and not a combination of grants and loans,” he said. a spokeswoman for the Airlines for America business group said in a statement. “This federal relief is essential to get our employees paid and to avoid time off at this time, especially since our country has historically high unemployment claims.”
Airline unions are also urging the Treasury to begin distributing the grants, which were due as of April 6, 10 days after President Donald Trump signed the $ 2.2 trillion coronavirus relief measure. . Leaders of 11 unions lobbied Mnuchin on this in a letter, writing that if the subsidies are delayed any longer, workers will lose their jobs “and our aviation industry will collapse.”
“It’s not free money for the airlines, it’s money that is meant to keep people at work and their paychecks,” said Sara Nelson, president of the Association of Flight Attendants, in an interview. “The pace is very worrying. There are smaller carriers that won’t pay this week without that money. ”
The Treasury Department did not immediately respond to a request for comment.
In previous remarks, Mnuchin said taxpayers should be compensated for helping airlines. This approach could help the Trump administration deflect criticism that aid to airlines is a rescue.
After a hugely profitable decade, airlines are now reeling under a travel plunge caused by the coronavirus outbreak. Delta Air Lines carries 5% more passengers than a year ago. The number of people passing through security checkpoints at U.S. airports fell from over 2 million a day to less than 100,000 – a level of travel more common in the mid-1950s, on the dawn of the era of jets.
The Treasury Department said last week it had received requests for wage subsidies from more than 230 airlines, mostly small companies that wanted less than $ 10 million. The ministry said 12 airlines would likely earn at least $ 100 million.
The Treasury is not only proposing that 30% of wage subsidies be loans, but that the major airlines give the government mandates to cover part of the loans, according to two people familiar with the matter, who spoke on condition of anonymity for discuss private negotiations. .
Warrants are securities that can be converted into shares, and the Treasury’s approach would create new government-owned shares that dilute the participation of existing shareholders. Helane Becker, analyst for financial services firm Cowen, said the airlines wanted something that wouldn’t dilute the holdings of current investors.
Airline inventories fell on Monday on indications that carriers are not having an easy time getting federal aid. United Airlines and American Airlines saw their shares fall 8%, while Southwest fell 6% and Delta nearly 5%.