The US Treasury on Thursday announced it had reached an agreement with five major airlines on the terms of loans to rescue their businesses after the COVID-19 pandemic badly dented air carriers.
The US$2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act stimulus package passed in late March provided for US$25 billion to be lent to the airline industry, but carriers were hesitant to take the money for fear of draconian conditions.
American Airlines Group Inc, Frontier Airlines Inc, Hawaiian Airlines Inc, SkyWest Airlines Inc and Spirit Airlines Inc finally agreed to the government’s terms, the treasury said in a statement.
Photo: Bloomberg
Discussions are continuing with other companies in the sector.
“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,” US Secretary of the Treasury Steven Mnuchin said.
The Treasury did not provide details of the loan terms, saying only that it required borrowers to provide warrants, which are financial instruments that can be converted into shares, or other forms of debt or equity.
Borrowers must also comply with conditions like maintaining employment and not paying employees above set levels, along with temporarily suspending the payment of dividends and share buybacks.
These loans are on top of another US$25 billion package paid out by the government in exchange for a commitment by the airlines not to cut jobs until after Sept. 30.
American Airlines on Thursday confirmed it had signed a letter of intent with the Treasury for a US$4.75 billion loan, and hoped to finalize the terms by the end of September.
However, CEO Doug Parker and president Robert Isom said in a letter the company expects to have 20,000 more employees than necessary by the fall.
“To be clear, this doesn’t mean 20,000 of our team members will be furloughed in October, it simply means we still have work to do to right-size our team for the airline we will operate,” they wrote.
“We continue to work with our union partners to find creative solutions that involve voluntary leaves and early-out programs,” they said.
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