US begins aid payments to airlines; American, Delta and United among first recipients

Apr 21, 2020

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The U.S. government has made the first $2.9 billion in payroll assistance to airlines, beginning the flow of sorely needed funds from the coronavirus pandemic bailout package.

Allegiant Air, American Airlines, Delta Air Lines, Southwest Airlines, Spirit Airlines and United Airlines were among the 56 companies that received their first payments on April 20, according to the Treasury Department. Airlines and other related companies, like ground handling and maintenance firms, are eligible for the funds.

The assistance is part of the more than $50 billion in aid U.S. legislators allocated to airlines as part of the $2 trillion bailout, which is known as the CARES Act. The package includes $25 billion for payroll grants and another $25 billion in loans, both of which come with air service and other strings attached.

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Alaska Airlines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways and SkyWest Airlines have also agreed to the terms for the Treasury’s payroll aid. They are expected to begin receiving funds shortly.

“Hopefully we will have all the i’s dotted and t’s crossed today on the payroll [assistance],” JetBlue CEO Robin Hayes told CNBC on Tuesday.

The delay in the federal aid has proved fateful for some. Alaska-based regional carrier RavnAir filed for bankruptcy and shut down on April 5. It cited the delays in getting CARES Act funds among the reasons for closing its doors.

Related: US airlines’ first bailout aid was tougher to get and came with more strings than expected

The payroll assistance also puts off a lot of difficult decisions at airlines. Carriers are required to maintain their workforces at the same pay rates, as well as continue to fly to all of the destinations they served prior to COVID-19 until Sept. 30 as a condition for taking the funds.

However, airline executives and Wall Street analysts warn that deep cuts are likely to come Oct. 1. Analysts at Cowen have warned that more than 100,000 staff could be furloughed or laid off as airline’s work to rightsize their workforces — and cost structures — to a market with far fewer people flying.

The latest analyst estimates forecast passenger numbers in the U.S. will be between 25% to 30% lower at year-end than they were at the end of 2019.

Related: US carriers signal slow recovery with United Airlines planning to cut June flying by 90%

Even then, getting travelers back onto planes will require confidence that they will not be exposed to the virus or COVID-19 — something few have answers too yet.

“Once market travel restrictions and lock downs are relaxed, there’s still the question will there be the demand from travelers to come back and fly,” said International Air Transport Association (IATA) chief economist Brian Pearce during a briefing Tuesday. “We really do need to see measures that restore passenger confidence.”

In addition to the payroll assistance, at least five U.S. airlines intend to apply for some of the separate $25 billion in loans available under the CARES Act. Alaska, American, Hawaiian, JetBlue and United have indicated they will seek funds though receipt will depend on the terms set by the Treasury.

Related: Could airlines say ‘no thanks’ to payroll aid because of schedule requirements?

Featured image by Alberto Riva/TPG.

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