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Five Airlines Reach Loan Agreements With Treasury Department

Five U.S. airlines have signed agreements with the U.S. Department of the Treasury on the loan terms under the Coronavirus Aid, Relief, and Economic Security or CARES Act.

The Treasury Department said Thursday that American Airlines, Frontier Airlines, Hawaiian Airlines, Sky West Airlines, and Spirit Airlines have signed letters of intent for the terms of the federal loans.

"We are pleased that major air carriers intend to use this important program and for Treasury to use its authority under the CARES Act to provide much-needed financial assistance, while ensuring appropriate taxpayer compensation. Conversations with other airlines continue, and we look forward to finalizing agreements as soon as possible," said U.S. Treasury Secretary Steven Mnuchin.

In March, U.S. President Donald Trump signed the $2 trillion coronavirus economic stimulus bill that includes $25 billion in direct aid to the airline industry.

The CARES Act authorizes the Treasury Department to make loans to eligible businesses, including airlines, for their losses incurred as a result of the coronavirus pandemic.

Several airlines in the U.S. have cut flight schedules and fares over the past few months as the rapid spread of the coronavirus across the world sharply reduced demand for air travel. The weak demand for air travel is the worst since the last financial crisis.

The CARES Act requires the airlines participating in the program to provide warrants, equity interests, or senior debt instruments as appropriate taxpayer compensation. The airlines must also commit to maintain employment levels as well as limit employee compensation, dividends, and share repurchases.

In mid-April, major U.S. airlines agreed to general terms with the Treasury Department regarding their participation in the Payroll Support Program to prevent layoffs in the airline industry that was hit by the COVID-19 pandemic.

The airlines 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.

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