The Treasury Department said Tuesday that the nation’s major airlines have tentatively agreed to terms for $25 billion in federal aid to pay workers and keep them employed through September.
Seattle-based Alaska Air Group said it will get $992 million, of which $267 million will be in the form of a loan and must be repaid to the government.
American Airlines will get $5.8 billion, consisting of a $4.1 billion grant and a $1.7 billion low-interest loan, the Fort Worth, Texas-based carrier said.
Analysts expected United and Delta were also eligible for more than $5 billion. United said it expected to complete a final deal with Treasury “in the next few days,” but gave no figures. Delta did not comment immediately.
Southwest Airlines said it expects to get $3.2 billion, including more than $2.3 billion in cash and the balance in an unsecured loan.
The government gets warrants that can be converted into small ownership stakes in each of the airlines.
The airlines did not want to give up equity, but Treasury demanded compensation for taxpayers. The airlines have little leverage — their business has collapsed as the COVID-19 pandemic reduces air travel to a trickle and they face mass layoffs without the federal aid.
The nation’s six biggest airlines — Delta, American, United, Southwest, Alaska and JetBlue — along with four smaller carriers all reached agreements in principle, and the Treasury Department said talks were continuing with others. Treasury Secretary Steven Mnuchin said the department would work with the airlines to finalize deals “and disburse funds as quickly as possible.”
President Donald Trump — perhaps mindful of criticism that the government was bailing out a previously profitable industry — said the deals will support airline workers and protect taxpayers.
“Our airlines are now in good shape, and they will get over a very tough period of time that was not caused by them,” Trump said.
The payroll aid, roughly based on each airline’s spending on wages and benefits from April through September 2019,will cover about 70% of those costs through Sept. 30, 2020.
American Airlines CEO Doug Parker called it “fantastic news,” and “we now believe we have the financial resources necessary to help us withstand this crisis.”
Alaska Air Group CEO Brad Tilden said the federal support will enable Alaska to take care of its employees “through a time of near-zero revenue.”
In return for the aid, 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.
As part of the funding deal, Alaska agreed to no involuntary furloughs or changes to rates of pay through Sept. 30, 2020; continued suspension of dividends and share repurchases until Sept. 30, 2021; limits on executive compensation through March 24, 2022; and continuation of service as reasonable and practicable under a Department of Transportation rule.
The airlines had expected to begin receiving the aid — entirely in cash that didn’t have to be repaid — from the government to cover their payrolls by April 6, the deadline set by Congress. Instead, they found themselves locked in several days of tense negotiations with the Treasury Department, which insisted that only 70% of the aid should be in cash, with the rest in loans that airlines must repay.
The leaders of six transportation worker unions, including the Association of Flight Attendants and the Air Line Pilots Association, issued a joint statement objecting that this change is “irresponsible” and “flies in the face of Congressional intent.”
The statement said the repayment burden “is likely to harm the very people the grants were designed to help: frontline aviation workers.”
Treasury also demanded that in order to compensate taxpayers, the largest airlines must turn over warrants that, if exercised, could give the government ownership stakes ranging between 1% and 3%, according to calculations by a Raymond James analyst. Southwest said Treasury will get about 2.6 million warrants, or less than 1% of its outstanding stock.
The warrants total 10% of the loan amount, and Mnuchin can exercise them at each airline’s closing stock price on April 9, according to airline officials.
The nation’s airlines entered 2020 riding a decade-long hot streak in which together they earned tens of billions of dollars due to strong travel demand. That success came crashing down in just a few weeks, as governments restricted travel to slow the spread of the new coronavirus, and people feared contracting the illness on a plane.
As part of a $2.2 trillion economic-relief package, Congress also approved a separate $25 billion program to provide loans to airlines. Analysts expect less interest because the airlines can tap private credit markets, but American said it plans to seek a $4.75 billion government loan.
Alaska said it also intends to apply for $1.128 billion in federal loans through this separate program. This process is still ongoing.
Funds loaned through this part of the program will support short-term liquidity needs and must be paid back in full, Alaska said.
Seattle Times aerospace reporter Dominic Gates contributed to this report.