Major US Airlines to Receive $25 Billion Bailout

By Isabel van Brugen
Isabel van Brugen
Isabel van Brugen
Isabel van Brugen is an award-winning journalist. She holds a master's in newspaper journalism from City, University of London.
April 15, 2020Updated: April 15, 2020

The White House has reached an agreement in principle with the nation’s largest passenger airlines over the terms of a $25 billion rescue package, that would provide financial relief to the industry amid the CCP virus pandemic.

Treasury Secretary Steven Mnuchin said Tuesday that 10 U.S. airlines—including Delta, American, United, and Southwest—said they planned to accept the government aid that would allow them to pay employees and avoid massive layoffs.

The assistance will include a mix of cash and loans, with the government receiving warrants that can be converted into small ownership stakes in the leading airlines. It was launched as part of an economic stabilization package passed by Congress last month.

U.S. passenger traffic has dropped by 95 percent due to the CCP (Chinese Communist Party) virus pandemic, commonly known as novel coronavirus.

Mnuchin said talks were underway with other carriers, and that the Treasury would continue to finalize details of the deals “and disburse funds as quickly as possible.”

“This agreement will fully support airline industry workers, preserve the vital role airlines play in our economy, and protect taxpayers,” President Donald Trump said Tuesday at a White House press briefing.

“Our airlines now are in good shape and they will get over a very tough period of time that was not caused by them.”

Under the terms of the payroll aid, major carriers will receive 70 percent of the funds for payroll in cash assistance that will not need to be paid back, while smaller carriers receiving $100 million or less will not need to repay any funds.

It is based roughly on the spending of each airline on wages and benefits from April through September 2019.

The Treasury approved $5.8 billion for American Airlines—a $4.1 billion grant and a $1.7 billion low-interest loan. CEO Doug Parker described the news as fantastic, and said the airline now believes it has the financial resources “necessary to help us withstand this crisis.”

The department approved $5.4 billion for Delta Airlines—a $3.8 billion grant and a $1.6 billion loan. CEO Ed Bastian said the aid would allow the airline to operate a minimal schedule for people who must travel, alongside its cost-cutting measures of placing 35,000 employees on voluntary leave and slashing 80 percent of its schedule.

United has not yet provided figures, but said it expects to complete a final deal with the department “in the next few days.” The airline is eligible for roughly $6 billion.

The Treasury is expected to grant Southwest Airlines $3.2 billion, including a $2.3 billion grant and the balance in an unsecured loan, the carrier said.

The airlines had expected to begin receiving federal aid—entirely in cash that didn’t have to be repaid—from the government 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 percent of the aid should be in cash, with the rest in loans that airlines must repay.

In addition, the Treasury demanded that to compensate taxpayers, the largest airlines turn over warrants equal to 10 percent of the loan amounts. They can be exercised at each airline’s closing stock price on April 9.

Mnuchin said in a statement that the agreement would “help preserve the strategic importance of the airline industry while allowing for appropriate compensation to the taxpayers.”

According to the International Air Transport Association, it is estimated that global airline losses from the CCP virus pandemic have climbed to $314 billion, up 25 percent from previous forecasts.

The Associated Press and Reuters contributed to this report.

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