Washington: US Treasury Secretary Steven Mnuchin is not budging on strict repayment guidelines for airlines wanting taxpayer aid, dashing the industry’s hopes for leniency. US carriers seeking to negotiate payback demands on federal funding for payroll assistance now see very little room for movement with Treasury officials.
Mnuchin’s team is requiring large carriers to repay 30 per cent of the assistance through low-interest loans due within five years, and is also seeking stock warrants equal to 10 per cent of those loans. Not only would the airlines be paying interest, but they’d also have to give up a share of their company’s ownership, though the exact terms weren’t clear.
The Treasury secretary said he has spoken to nearly all airlines. “Very quickly decisions coming out,” Mnuchin said late Monday during a White House press briefing.
The nation’s four largest carriers were reviewing grant offers from the Treasury Department received over the weekend. At least three discount airlines received the terms of the agency’s proposals Monday.
Treasury is facing pressure to start doling out money soon to an airline industry losing billions of dollars and facing a drop-off in passengers of 95 per cent. US airline stocks fell, out-pacing a decline in the broader market and marking the first drop since last week’s rebound.
Flood of aid requests
The agency said it has received 230 applications for aid from passenger carriers of all sizes. It’s working with 12 that would get more - in some cases much more - than $100 million each, and is discussing what sort of terms it will require in return. Carriers eligible for payroll aid that would receive less than $100 million won’t have to repay any of the money, the agency said.
Mnuchin has repeatedly said the aid package “is not a bailout”. The Treasury chief is rejecting the notion that airlines could get a government bailout similar to what automakers and some banks received during the global financial crisis more than a decade ago.
However, airlines, unions and some key lawmakers involved in the $2 trillion package that became law on March 27 said the intent was that the payroll assistance portion would go directly to carriers and their contractors without restrictions. Passenger carriers are set to get $25 billion, cargo airlines $4 billion and airline contractors $3 billion in payroll funds.
The law gives Mnuchin the option to require “appropriate compensation”, but doesn’t require it.
Larger airlines remain unhappy that they’ll have to repay the 30 per cent and give up stock in their companies, but are increasingly resigned to that arrangement. Details of how the warrant proposal would work haven’t been revealed, but it could give the government a significant proportion of a company’s shares.
If American Airlines Group Inc. received what it’s eligible for in payroll assistance- about $6 billion - it would have to provide warrants worth more than 3 per cent of its current market capitalization, for example.
Southwest Airlines Co. worked “very hard with the US Treasury Department over the weekend,” CEO Gary Kelly told employees in a weekly recorded message. “I hope to have something to announce on that soon.”
The carrier, which flies the most passengers in the US, is preparing for a variety of scenarios, ranging from a quick travel rebound next year to one that takes four to five years in a real recession.
“We need to be prepared for a very prolonged, sluggish travel environment,” he said. “That’s where having plenty of cash, low debt, a low cost structure and low-fare brand becomes so important.”
The payroll assistance was designed to cover the six-month period through the end of September and can only be used to pay wages and benefits. Airlines accepting the money must agree not to lay off employees during that period.
Congress directed that the allotments be based on wages and benefits paid in the second and third quarters of last year. However, far more than 12 airlines paid salaries totaling more than $100 million, according to Department of Transportation data.