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

Apr 14, 2020

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.

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.

Get Coronavirus travel updates. Stay on top of industry impacts, flight cancellations, and more.

“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

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

Featured image by Patrick T. Fallon/Bloomberg/Getty Images.

Delta SkyMiles® Platinum American Express Card

Earn 90,000 bonus miles after you spend $3,000 in purchases within the first three months of card membership. Plus, earn a $200 statement credit after your first Delta purchase within the first three months. Offer ends 7/28/21.

With Status Boost™, earn 10,000 Medallion Qualification Miles (MQMs) after you spend $25,000 in purchases on your Card in a calendar year, up to two times per year getting you closer to Medallion Status. Earn 3X Miles on Delta purchases and purchases made directly with hotels, 2X Miles at restaurants and at U.S. supermarkets and earn 1X Mile on all other eligible purchases. Terms Apply.

Apply Now
More Things to Know
  • Limited Time Offer: Earn 90,000 Bonus Miles after spending $3,000 in purchases on your new Card in your first 3 months and a $200 statement credit after you make a Delta purchase with your new Card within your first 3 months. Offer expires 7/28/2021.
  • Limited Time Offer: Plus, get a 0% intro APR on purchases for 12 months from the date of account opening, then a variable 15.74%-24.74%. Offer expires 7/28/2021.
  • Accelerate your path to Medallion Status, with Status Boost®. Plus, in 2021 you can earn even more bonus Medallion® Qualification Miles (MQMs) to help you reach Medallion Status.
  • Earn 3X Miles on Delta purchases and purchases made directly with hotels.
  • Earn 2X Miles at restaurants worldwide, including takeout and delivery and at U.S. supermarkets.
  • Receive a Domestic Main Cabin round-trip companion certificate each year upon renewal of your Card. *Payment of the government imposed taxes and fees of no more than $75 for roundtrip domestic flights (for itineraries with up to four flight segments) is required. Baggage charges and other restrictions apply. See terms and conditions for details.
  • Enjoy your first checked bag free on Delta flights.
  • Fee Credit for Global Entry or TSA Pre✓®.
  • Enjoy an exclusive rate of $39 per person per visit to enter the Delta Sky Club® for you and up to two guests when traveling on a Delta flight.
  • No Foreign Transaction Fees.
  • $250 Annual Fee.
  • Terms Apply.
  • See Rates & Fees
Intro APR on Purchases
0% on purchases for 12 months
Regular APR
15.74%-24.74% Variable
Annual Fee
$250
Balance Transfer Fee
N/A
Recommended Credit
Excellent/Good
Terms and restrictions apply. See rates & fees.

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.