Skip to content

Airlines strike bailout deal with feds to stave off layoffs

April 14, 2020
5 min read
Airlines strike bailout deal with feds to stave off layoffs
This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.

Help is on its way for the beleaguered airline industry.

At least 10 big U.S. carriers will seek some of the billions of dollars being made available to them in the federal stimulus package known as the CARES Act, the U.S. Treasury Department announced late Tuesday.

"The deals aren't final, but the assistance is almost certain to be a mix of cash and loans, and the government could take a small ownership stake in the leading airlines," The Associated Press notes.

With that, the move appears to end wrangling that was reported to be going on between the government and the airlines over conditions for the aid, setting up the airlines to apply for some of the $25 billion in payroll grants.

“We welcome the news that a number of major airlines intend to participate in the Payroll Support Program,” Treasury Secretary Steven Mnuchin said in a statement. “This is an important CARES Act program that will support American workers and help preserve the strategic importance of the airline industry while allowing for appropriate compensation to the taxpayers.

Sign up for the free daily TPG newsletter for more airline news

As a condition to the grants, airlines cannot furlough staff and must maintain current pay rates through Sept. 30.

Among the airlines applying for assistance are the nation’s six biggest carriers: Alaska Airlines, American, Delta, JetBlue, Southwest and United. Also applying for aid are Hawaiian Airlines, budget carriers Frontier and Allegiant, and regional airline SkyWest.

Mnuchin said those 10 carriers “have told us that they plan to participate in the Payroll Support Program,” adding that “conversations continue with other airlines regarding their potential participation.”

Sign up for our daily newsletter

Funds from the CARES Act, which was signed into law on March 27, have been eagerly anticipated by airlines facing a sudden cash crunch caused by the coronavirus-related fall in demand and spike in refund requests from customers.

More: 5 key elements of the $50 billion airline aid package

While the legislation was passed two weeks ago, recent reports indicated the payouts were tied up as the government attached conditions that were said to surprise the airlines. Now, with the apparent hold-up resolved, Mnuchin promised swift action.

“We look forward to working with the airlines to finalize the necessary agreements and disburse funds as quickly as possible,” he said in the statement.

At American Airlines, leaders at the nation's biggest carrier lauded the developments as "fantastic news."

In a memo to employees, American CEO Doug Parker and president Robert Isom said the carrier expects $5.8 billion in financial assistance from the legislation's Payroll Support Program (PSP). Of that, $4.1 billion will be in grants and the remaining $1.7 billion as a loan.

Related: Airlines ask DOT to suspend flights to more US airports, small cities fare worst

"With this level of assistance, we now believe we have the financial resources necessary to help us withstand this crisis and be in position to serve the traveling public when they are ready to start flying again," the executives said in the memo.

American also said it would apply for more assistance beyond the payroll package, detailing plans "to separately apply for a loan from the U.S. Treasury of approximately $4.75 billion."

Still, praise from the industry was not unanimous.

The Air Lines Pilots Association — the nation's largest pilots union — pushed back at conditions for the payroll aid.

“Unfortunately, Treasury is undermining the intent of the CARES Act by treating a portion of the grants designed to protect jobs not as grants, but as loans, which will make it harder to stop layoffs and slow the recovery," ALPA president Capt. Joe DePete said in a statement. "In spite of this, we remain optimistic that more carriers will avail themselves of this funding — and that Congress will seek to overturn the constraints placed on this worker assistance program.”

More: How long will US airlines’ cash last? Between 4 months and a year, analyst says

When the stimulus package was first passed, the airline industry expected the $25 billion payroll protection portion to be issued solely in grants that need not be repaid. However, in a story initially reported by Reuters last week, Treasury eventually added conditions. Carriers that take more than $100 million will have to repay 30% of the funds, and the government will take warrants — or the right to an ownership stake — equal 10% of the loaned amount.

The country’s largest carriers — American Airlines, Delta Air Lines, Southwest Airlines and United Airlines — would all be required to repay some of the grant funding and give the government warrants, an analysis by Raymond James finds. The warrants could amount to as much as a 3% equity stake in American to as little as a 1% stake in Delta and Southwest.

Still the payroll assistance will be a welcome arrival for most carriers, even if the recently added strings were a bitter pill for airlines and labor groups that pushed back against it.

"We are pleased that a number of airlines have decided to participate in the Payroll Support Program, despite the constraints placed on this grant funding by the Treasury Department," DePete said.

Related: It may be years until passenger demand returns to 2019 levels for US airlines

Contributing: Edward Russell, TPG

Featured image by Getty Images

Top offers from our partners

How we chose these cards

Our points-obsessed staff uses a plethora of credit cards on a daily basis. If anyone on our team wouldn’t recommend it to a friend or a family member, we wouldn’t recommend it on The Points Guy either. Our opinions are our own, and have not been reviewed, approved, or endorsed by our advertising partners.
See all best card offers

TPG featured card

Best card for premium perks while traveling
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards

2 - 10X points
10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
5X5X miles on flights booked through Capital One Travel.
2X2 Miles per dollar on every purchase, every day

Intro offer

75,000 bonus miles
Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel

Annual Fee

$395

Recommended Credit

740-850
Excellent
Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

Pros

  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,400+ lounges, including Capital One Lounges and our Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023
Best card for premium perks while traveling
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
5X5X miles on flights booked through Capital One Travel.
2X2 Miles per dollar on every purchase, every day
  • Intro Offer
    Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel

    75,000 bonus miles
  • Annual Fee

    $395
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    740-850
    Excellent

Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

Pros

  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,400+ lounges, including Capital One Lounges and our Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023