U.S. passenger airlines 'agree deal' with Treasury after $25 billion offer for government coronavirus payroll aid in return for proposed ownership stake in the nation’s leading carriers
- Airline industry officials expect all major airlines to accept the grants in days
- The government could end up owning about 3% of American, 2.3% of United, 1% of Delta, 1.3% of JetBlue Airways Corp and 0.6% of Southwest
- U.S. Treasury Secretary Steven Mnuchin said he expects decisions 'very quickly'
- The airlines fought the Treasury’s proposal, arguing last month's deal was better
- Learn more about how to help people impacted by COVID
Passenger airlines are said to have accepted the terms of a $25 billion offer for government coronavirus payroll aid.
Further announcements on the details of the plan will come later Tuesday, CNBC reports.
U.S. Treasury Secretary Steven Mnuchin had said on Monday he expects decisions to come out 'very quickly.'
Brent McIntosh, the Treasury undersecretary for international affairs, said Monday the agency was not planning to change the terms laid out on Friday, which require 30 per cent of the funds allotted to each airline to be repaid.
The U.S. government would also receive warrants equal to 10 per cent of the loan amount under that plan.
Raymond James airline analyst Savanthi Syth estimated that if the government exercises the warrants, it could wind up with 3 per cent of American Airlines, 2 per cent of United Airlines, and 1 per cent each of Delta Air Lines and Southwest Airlines.
Those four carriers control more than 80 per cent of the U.S. air travel market.
United Airlines boarding gates sit empty at San Francisco International Airport on April 12
The Treasury Department and leading airlines had continued their negotiations Monday over terms of coronavirus-relief payments, with Treasury sticking to a proposal that could give the government an ownership stake in the nation’s leading carriers.
'We've attempted to come up with an equitable methodology that works for all passenger air carriers, and we don't want to engage in individual negotiations that would require us to make changes across the carriers,' McIntosh said.
Payments were supposed to begin a week ago but the airlines had fought the Treasury’s proposal.
According to sources the major holdup in recent days was Treasury’s insistence that 30 per cent of the aid for larger airlines would be in the form of loans that must be repaid and with the government getting warrants equal to 10 per cent of the loan amount.
The airlines thought they had a better deal last month: Congress agreed to give passenger airlines $25 billion in cash grants to cover payroll costs for six months, through September.
The amount of each airline’s stock that the government could get would depend on several factors including 2019 labor costs and recent stock market value.
Based on wages and benefits in the second and third quarters of 2019, American Airlines Group Inc and United Airlines Holdings Inc were each eligible for about $6 billion in grants, Delta Air Lines Inc about $5.6 billion and Southwest Airlines Co about $4 billion.
However, one airline official said major carriers may receive only about 75 per cent of the payroll assistance sought because the total amount of funds sought exceeded $25 billion.
Delta Air Lines passenger planes are seen parked due to flight reductions made to slow the spread of coronavirus disease at Birmingham-Shuttlesworth International Airport in Alabama
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Earlier, officials told Reuters all of the large U.S. airlines were increasingly resigned to the terms. Once they accept, the money could arrive soon.
'We intend to get as much money out as quickly as possible, consistent with our obligation to taxpayers to know that it's going for the right purposes,' McIntosh said.
U.S. passenger airlines, suffering an unprecedented downturn in demand due to the coronavirus, are also eligible for a separate $25 billion loan package under the CARES Act.
They had lobbied for the grant portion to be free cash for employee payrolls to prevent layoffs through September 30, helping to ensure a trained staff is on hand for flights to resume and support an economic rebound once consumer sentiment recovers.
American, United, Delta and Southwest have said they were evaluating the aid terms but had no additional comment.
On Sunday, just 90,510 travelers went through U.S. security checkpoints, down from nearly 2.5 million a year earlier.
McIntosh said Treasury arrived at the compensation plan after a substantial analysis that it said shows 'approximately 70 per cent of those payments becomes a direct benefit to taxpayers' in the form of avoided unemployment benefits, taxes that come back to the federal government, and the benefits of continued air service.
Airline stocks fell Monday on indications that the carriers were not having an easy time getting federal help. United Airlines and American Airlines both saw their stock fall 8 per cent while Southwest fell 6 per cent and Delta dropped nearly 5 per cent.
