Treasury Department officials have begun sending billions of dollars in payments to airlines as part of an effort to keep carriers afloat as they grapple with the worst economic downturn in the industry’s history.
Officials announced Monday that they had reached final agreements with six carriers — Allegiant, American, Delta, Southwest, Spirit and United airlines — on grant money to fund the Payroll Support Program. The money is to be used to pay front line workers, including pilots, flight attendants and mechanics.
Treasury officials also said they are working to finalize agreements with five other major carriers: Alaska, Frontier, Hawaiian and SkyWest airlines and JetBlue Airways, all of which have indicated that they plan to participate in the program.
“The Payroll Support Program is critical to supporting American workers and preserving our airline industry, which is a vital part of the U.S. economy,” Treasury Secretary Steven Mnuchin said in a statement that accompanied the announcement. “We continue to work quickly to deliver this needed relief.”
About $2.9 billion in initial payments were made Monday to approved applicants, including two major airlines and 45 smaller carriers, officials said. Additional payments will be made to airlines on a rolling basis.
Word that funds have begun flowing is welcome news for the industry, which has been reeling from the impact of the virus and fearful that recovery is still many months away.
As of April 15, U.S. carriers had idled more than 2,700 aircraft, roughly 44 percent of the total fleet, according to Airlines for America, an industry trade group.
At a briefing Tuesday, Brian Pearce, chief economist with the International Air Transport Association, said recent survey results showed that 40 percent of passengers said they would wait six months or more before returning to air travel.
Even with the money flowing, airline executives warned that there still may be cuts ahead.
Under the terms of the agreement, airlines must agree to pay back 30 percent of the money they receive. Carriers also are barred from furloughing workers until Sept. 30, cannot issue dividends or buy back their stock until late 2021, and must limit executive compensation for that time period.
They also must issue stock warrants to the government. A stock warrant entitles its holder to buy the underlying stock at a guaranteed price until the date the warrant expires.
Treasury officials said they received hundreds of applications for the program and are working to review applications as quickly as possible.
The Cares Act included $29 billion in grants to airlines for payroll support — $25 billion to passenger carriers and $4 billion to cargo operators. In addition, the legislation provides $25 billion in loans or loan guarantees.
Several airlines have also indicated they intend to tap the loan program. In a filing with the Securities and Exchange Commission, United said it applied for up to $4.5 billion in loans. Southwest Airlines has said it will apply for a loan of nearly $1 billion.
Airlines were eligible to receive payouts equal to their payroll costs between April and October of last year. But because the $25 billion set aside for passenger carriers under the Cares Act is less than the $31 billion paid out by airlines, the payments will not cover the full amount.
