Mnuchin Airline Plan Has Big Firms Repaying Virus Aid Grants
U.S. Won’t Require Airlines Getting $100m Aid to Give Stake
(Bloomberg) -- The Trump administration wants the 12 largest U.S. airlines to repay a portion of the federal grants they receive to cover their payrolls during the coronavirus crisis.
The large carriers, some of which are set to receive billions of dollars each in payroll assistance, are being offered aid packages that would require them to repay 30% of the grants through low-interest loans due within five years, two people familiar with the offers said.
Treasury Secretary Steven Mnuchin began making calls to airlines to outline the terms on Friday, after a flurry of lobbying to speed the process of disbursing money from the $2 trillion virus aid legislation finalized on March 27. The people asked not to be named to discuss the offers that haven’t been made public.
Airlines receiving $100 million or less in payroll assistance from the government won’t need to provide a financial stake or pay compensation, the Treasury Department said Friday evening as it began sending offers to the beleaguered carriers.
“This determination will provide significant support to workers and businesses across the country, while also appropriately compensating taxpayers,” Mnuchin said in a statement.
The agency said it had received 230 applications for aid from passenger carriers. It is working with 12 that would get more than $100 million, and is discussing what sort of financial instruments it will require in return.
Katherine Estep, a spokeswoman for Airlines for America, a trade group representing most of the large airlines, said in a statement late Friday night that “We believe the law indicated that the Direct Payroll Assistance funding was to be only in grants – which is considerably more effective for our employees – and not a combination of grants and loans.”
While AFA stopped short of directly criticizing Mnuchin in its statement, it said that grants “are critical to getting our employees paid and preventing furloughs, especially at a time when our country is experiencing historically high unemployment claims.”
Democrats in Congress have insisted their intent in the law wasn’t to require that the airlines have to post a financial stake or a make a reimbursement, saying the payroll grants were intended to keep workers employed. A separate pool of $25 billion in loans was also included in the legislation.
‘Appropriate Compensation’
The law gives Mnuchin the authority to ensure the airlines “provide appropriate compensation” for the grants, but it’s not a requirement.
The decision by the Treasury to exempt smaller carriers marks a victory for the littlest ones, but the head of the Regional Airline Association, Faye Malarkey Black, on Friday night urged the department to be flexible with some of the struggling regional carriers as well.
The decision was praised by the National Air Transportation Association, which represents some of the smaller carriers.
“The staff at Treasury has been truly exceptional in terms of their accessibility and receptiveness to our questions and concerns,” said Jonathon Freye, the group’s spokesman.
The Trump administration has quickened the pace of distributing the aid amid complaints that the process was moving too slowly as airlines -- which are flying only 5% of their usual load -- bled cash.
Representatives of United Airlines Holdings Inc. and American Airlines Group Inc. said they had received proposed grant packages from the Treasury Department on Friday, without providing specifics.
“We can confirm we heard back from the Treasury Department regarding the application we submitted for government support, and we are currently reviewing the details of their proposal,” said Frank Benenati, a spokesman for United.
At least one other carrier also received a plan Friday, people familiar with the matter said.
President Donald Trump said he’ll meet this weekend with airline executives as offers of aid started going out to carriers.
‘A Great Plan’
“We have a great plan for the airlines -- got to keep the airlines going,” Trump said Friday during a White House news briefing.
The more than $2 trillion federal stimulus package includes payroll grants of $25 billion for passenger airlines, $4 billion for cargo haulers and $3 billion for airline contractors, plus another $29 billion in loans for passenger and cargo carriers and $10 billion in grants to airports.
The primary concern for large and small airlines has been getting access to the grants quickly to cover salaries and benefits. Under the law, airlines that get such grants must promise not to lay off workers through Sept. 30.
Passenger carriers paid their employees more than $30 billion last year during a six-month period that the government is using to help determine the amount of the aid for each airline.
The $25 billion set aside for that purpose won’t cover all of the wages and benefits that airline employees earned a year ago. But most pilots and flight attendants are paid by the hour and should see a reduction in what they are paid through September even if they aren’t laid off.
Airlines are allowed to make significant cuts in their operations even though the government is requiring a minimum number of flights to cities they serve.
The six major airlines -- United, American, Southwest Airlines Co., Delta Air Lines Inc., JetBlue Airways Corp. and Alaska Air Group Inc. -- paid employees $27 billion in salary and benefits, according to U.S. Bureau of Transportation Statistics data.
The bureau gathers data from any carrier with revenues of $20 million or more, so the smallest operators aren’t included in the totals.
The wages and benefits at the major airlines is nearly 90% of the total paid by all passenger carriers, indicating they are likely to get the lion’s share of government aid.
The recent steady and sustained drop in U.S. commercial airline travel has seen passenger numbers fall 95% below levels a year ago -- an outcome that hasn’t been seen since the dawn of the jet age in the early 1960s.
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