Airlines must suggest possible compensation in return for government cash assistance and agree to conditions that include not cutting pay or laying off employees through Sept. 30, the US Department of the Treasury said in guidelines issued on Monday as it prepares to quickly hand out US$25 billion.
The US Congress approved legislation last week authorizing the US$25 billion for passenger airlines, as well as US$4 billion for cargo carriers and US$3 billion in cash for airport contractors such as caterers and airplane cleaners.
Under the law, the department is supposed to make initial payments of the grants designed to cover payroll costs by next week.
Photo: Reuters
The companies “must identify financial instruments” that would “provide appropriate compensation,” the guidelines said, adding that these could include warrants, options, preferred stock, debt securities or notes.
The department told applicants to apply by Friday at 5pm to receive funds as soon as possible. Applications received after April 27 might not be considered.
Other conditions for the cash assistance include limits on executive compensation through March 2022 and no stock buybacks or dividend payments through September 2021.
Airlines may also apply for a separate US$29 billion in government loans.
Separate department guidelines released on Monday for loans said that carriers must provide financial instruments “for the benefit of taxpayers, in equity appreciation or a reasonable interest rate premium.”
Companies critical to US national security can seek loans from a separate US$17 billion fund.
Those seeking loans must describe losses they have “incurred or will incur as a result of coronavirus” and detail the cause of the loss such as reduced demand, unavailability of credit or unbudgeted medical expenses.
The department said in reviewing applications for the cash assistance that it would consider the “adequacy of the proposed financial instruments for providing compensation to the Federal Government.”
It also said that it “may refuse to provide payroll support payments to applicants that have taken, or are currently evaluating, any action to commence a bankruptcy.”
Major US airlines on Saturday asked the department to move quickly to release funds. They have cut tens of thousands of flights as travel demand collapses amid the coronavirus pandemic and warned that without cash they would need to quickly begin massive furloughs.
The chief executives of American Airlines Group Inc, Delta Air Lines Inc, United Airlines Holdings Inc, Southwest Airlines Co and others wrote in a letter that “given the urgent and immediate need, it is essential that these funds be disbursed as soon as possible.”
US Secretary of the Treasury Steven Mnuchin on Friday said that taxpayers would be “compensated” for providing emergency assistance to air carriers.
American Airlines on Monday said that it would be allocated about US$12 billion of the combined cash assistance and government loans.
It expects that the department would not seek “onerous” conditions, it has said.
American Airlines chief executive officer Doug Parker and president Robert Isom said in a memo to staff on Monday that it would seek nearly one-quarter of the relief funds on offer.
“We intend to apply for these funds and are confident that ... they will allow us to fly through even the worst of potential future scenarios,” the pair wrote, according to the Wall Street Journal.
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