Seattle-based Alaska Airlines and nine other air carriers plan to participate in a $25 billion payroll assistance program that’s part of the coronavirus relief package signed into law last month, Treasury Secretary Steven Mnuchin said today.
“Conversations continue with other airlines regarding their potential participation,” Mnuchin said in a statement.
Today’s announcement comes after days of negotiations over the terms of the assistance program, with the Treasury Department seeking ownership stakes in at least some of the airlines that participate.
Another point of contention is the Trump administration’s insistence that about 30 percent of the money provided to the airlines would be in the form of a low-interest loan. Under the deals announced today, the loans would be repaid over 10 years.
If an airline’s loan exceeds $100 million, the Treasury Department would be entitled to stock warrants worth 10 percent of the excess loan amount, The New York Times reported. Airlines that accept the money would also be required to refrain from major cuts in staffing or pay through September. Stock buybacks and dividend payouts would be prohibited until September 2021, and limits on executive pay would be in effect until late March 2022.
Alaska Airlines and its subsidiary, Horizon Air, will receive $992 million from the payroll support program, with $267 million of that sum in the form of a loan. The Treasury Department will have the right to buy 847,000 non-voting shares of Alaska Air Group at a price of $31.61 per share.
“We are grateful for and humbled by this support,” Brad Tilden, Alaska Air Group’s Chairman and CEO, said in a statement. “This aid will bring immediate and sorely needed liquidity to the airline industry and will enable all airlines – including Alaska – to continue serving our customers and to keep our people at work, while we adjust to an extraordinary reduction in demand.
United Airlines said it was still working out the details of its agreement with the Treasury Department. Allegiant Air said it’s reviewing term sheets for federal assistance while it explores other financing alternatives.
As for the other airlines:
- Delta Air Lines will receive $5.4 billion from the payroll support program, including a loan of $1.6 billion, CEO Ed Bastian told employees in a memo. He said Delta will provide the government with warrants to acquire about 1 percent of Delta stock at $24.39 per share over five years.
- Southwest Airlines will be getting $3.2 billion in support, including a loan of almost $1 billion. The deal calls for the Treasury Department to receive warrants for about 2.6 million shares.
- JetBlue will receive $935.8 million in support, with $250.7 million in the form of a loan. The government will receive “a limited number of warrants,” the airline said.
- American Airlines will receive $5.8 billion in support, including a loan of $1.7 billion. Details of the deal, including the stock warrants for the government, will be laid out in a regulatory filing, the airline said.
- Frontier Airlines, Hawaiian Airlines and SkyWest Airlines have also agreed to participate in the payroll support program, but details about their deals weren’t immediately available.
The $25 billion payroll assistance program was set up under the terms of the Coronavirus Aid, Relief and Economic Security Act, or CARES Act. The detailed terms of the aid were left up to the airlines and the Treasury Department to negotiate — and not everyone in Congress was thrilled about the results.
“Although I’m glad that the Treasury is finally cutting checks for airline employees, I’m disappointed the terms will require repayment for some of the payroll grants,” Sen. Ed Markey, D-Mass., said in a tweet.
The CARES Act provides another $25 billion for loans to passenger airlines, as well as $8 billion in grants and loans to cargo carriers. Alaska Airlines and Horizon Air said they would seek $1.128 billion in loans from the Treasury Department through the loan program, and American Airlines said it would seek nearly $4.8 billion in loans.
Meanwhile, Boeing is still considering how it would take advantage of federal assistance. The Washington Post quoted an unnamed Boeing official as saying “we’re trying to figure out what the process and the protocol will look like with Treasury, and what will be the best way to approach it.”
Today Boeing reported the cancellation of 150 orders for 737 MAX planes during March, which outweighed the month’s 31 new orders for wide-body passenger planes and military aircraft. Twenty planes were delivered during March, rounding out a first quarter with only 50 commercial jet deliveries.
Boeing said in a statement that the coronavirus outbreak is dealing a heavy blow to the aviation market.
“The airline industry is confronting the COVID-19 pandemic and the unprecedented impacts on air travel,” the company said. “We are working closely with our customers, many of whom are facing significant financial pressures, to review their fleet plans and make adjustments where appropriate. At the same time, Boeing continues to adjust its order book to adapt to lower-than-planned 737 MAX production in the near term.”
The worldwide fleet of 737 MAX planes is still grounded in the wake of two catastrophic plane crashes, and most of Boeing’s airplane production workforce has been idled due to the outbreak. However, Boeing says about 2,500 employees will be called back to their work sites in the Puget Sound region and Moses Lake, Wash., to work on defense projects and 737 MAX maintenance.
Update for 4:30 p.m. PT May 11: United Airlines said it worked out a deal for $5 billion in assistance, including a $1.5 billion loan. Allegiant said it would receive $171.9 million in relief, including a $21 million loan. Spirit Airlines said it would receive up to $334.7 million through the payroll support program, including a Treasury loan of up to $70.4 million. All three deals involve stock warrants.
