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Major Airlines Reach Deal With US Treasury On Payroll Aid

deltaairlines 2 15apr20

Major US airlines agreed to general terms with the U.S. Treasury regarding their participation in the Payroll Support Program that will prevent layoffs in the airline industry hit by the COVID-19 pandemic.

President Donald Trump last month signed the $2 trillion coronavirus economic stimulus bill that reportedly includes $25 billion in direct aid to passenger airlines.

A top economic research firm Compass Lexecon concluded that emergency relief grants for airline industry will drive up to $27 billion of direct economic impact in just the next six months, and $25 billion more over the next two years.

The US airlines today agreed to the Treasury's conditions such as prohibitions against involuntary furloughs and reductions in employee pay rates and benefits through September 30, 2020; the elimination of share repurchases and dividends until September 30, 2021; and limits on executive compensation until March 24, 2022.

U.S. Treasury Secretary Steven Mnuchin said, "... This is an important CARES Act program that will support American workers and help preserve the strategic importance of the airline industry while allowing for appropriate compensation to the taxpayers."

The Secretary said that Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines, and Southwest Airlines plan to participate in the Payroll Support Program.

The Secretary also said conversations are continuing with other airlines regarding their potential participation. He is also working to review and approve applications for smaller passenger air carriers as quickly as possible and will provide further guidance for cargo carriers and contractors very soon.

American Airlines Group Inc. announced that the U.S. Treasury has approved $5.8 billion in financial assistance. The funds will come in two forms: a direct grant of $4.1 billion, and a low-interest rate loan of $1.7 billion. In addition, American expects to separately apply for a loan from the U.S. Treasury of about $4.75 billion.

Southwest Airlines said its expected disbursements under the program total more than $3.2 billion, consisting of more than $2.3 billion in direct payroll support and a nearly $1 billion unsecured term loan.

The loan is expected to have a 10-year term with low interest rates and may be repaid at any time prior to maturity at par. The loan is expected to include about 2.6 million warrants issued to the U.S. Department of Treasury.

Delta Air Lines said its agreement with Treasury includes $5.4 billion from the payroll support program. The payment includes an unsecured 10-year low-interest loan of $1.6 billion, and Delta will provide the government with warrants to acquire about 1 percent of Delta stock at $24.39 per share over five years.

Alaska Airlines and Horizon Air agreed to terms with the U.S. Treasury regarding their participation in the Payroll Support Program. The program will provide Alaska and Horizon with a total of $992 million, to be used exclusively for the cost of employee payroll and benefits.

Of the $992 million in funding to be disbursed, $267 million will be in the form of a loan and must be repaid to the government. Additionally, the Treasury will receive the right to buy 847,000 non-voting shares of Alaska Air Group at a price of $31.61 per share.

Separately, the U.S. Department of Transportation announced the award of about $10 billion to commercial and general aviation airports from the newly created coronavirus relief fund.

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