US airlines still waiting on coronavirus aid as Treasury demands some repayment

U.S. airlines are still waiting for the first checks from the $50 billion set aside to support them through the novel coronavirus pandemic nearly three weeks after Congress earmarked the funds.

At the center of the hold up is the U.S. Treasury Department's move to add strings to the $25 billion in grants available for staff compensation and benefits. 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, Reuters first reported on April 10.

The decision to require repayment of some of the grants reportedly came as a surprise to many carriers. The decision on warrants was always a possibility and left to the discretion of the Treasury Department in the stimulus bill, known as the CARES Act. Now, the agency seems to be holding firm on the option.

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"I think you’ll see, very quickly, decisions coming out," Treasury Secretary Steven Mnuchin said about the airline funds during a White House briefing on April 13. "I’m very pleased with the discussions we’ve had.”

Mnuchin added that he had met personally with "all the major airline CEOs" to discuss the terms.

The Treasury Department estimates that its repayment terms would apply to 12 airlines out of the 230 applications that it received for the payroll grants. The CARES Act funds are available not only to airlines, but also to their contractors — such as caterers and maintenance providers.

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.

Related: What you need to know about the $50B coronavirus aid package to airlines

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This is not the first time the U.S. government has taken an ownership stake in airlines. The government did the same with part of the aid package after 9/11, for example taking a warrant for about 18 million shares in America West Airlines in exchange for a $429 million loan. It later sold the stake at a roughly 30% return on the amount lent.

Small carriers, like Cape Air and Mesa Airlines, would not have to repay any of the funds or grant the government warrants under the Treasury Department's rules.

Airlines are also subject to schedule and service requirements in exchange for taking government aid. They must continue a minimum level of air service to all cities they served either last summer or this March, or get a waiver from the Department of Transportation.

Alaska Airlines, Allegiant Air, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, Spirit Airlines and United Airlines had all applied for exemptions as of April 13.

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

The downside to the Treasury's ongoing refinement of terms is the delay dispersing the CARES Act funds. Association of Flight Attendants-CWA president Sara Nelson highlighted this in an interview with The Associated Press on April 13 where she said the slow pace was "concerning."

Air traffic is down 95% year over year, leaving nearly all U.S. airlines facing a cash crunch as demand has dropped to near zero and customers demand refunds for canceled flights.

“There are smaller carriers that are not going to make payroll this week without that money," said Nelson.

Case in point, Alaska-based regional carrier RavnAir filed for bankruptcy and shut down on April 5. The airline, which provides essential air service to many small communities around the state, said in its bankruptcy filing that it could not make payroll and meet other obligations as it waited for funds in anticipated receiving from the CARES Act.

President Trump signed the aid bill into law on March 27, nine days before RavnAir closed its doors.

Related: Alaska Airlines steps in to cover some former RavnAir routes