Apr 14, 2020 - Economy

Airlines, Treasury strike aid deal to soften coronavirus impact

An American Airlines jet sits at a gate at Washington National Airport.

American Airlines is among 10 airlines that have struck a deal to get federal aid to mitigate the effects of the coronavirus pandemic. Photo: Daniel Slim/AFP via Getty Images

At least 10 U.S. airlines will accept federal aid to help keep employees on the payroll during the coronavirus crisis, in exchange for stock warrants that could give the U.S. government an equity stake in each company.

Why it matters: The deal puts an end to nearly a week of intense negotiations between the airline industry and Treasury Secretary Steven Mnuchin, who insisted that airlines pay back a portion of the payroll aid and that taxpayers get some potential upside in exchange for helping the industry.

Some airlines released details of their aid packages late Tuesday, with more information expected in filings with the Securities and Exchange Commission in the coming days.

  • Southwest Airlines said it would receive nearly $3.2 billion — a $2.3 billion direct grant for payroll support and almost $1 billion in an unsecured, 10-year loan. The loan is expected to include approximately 2.6 million stock warrants issued to the U.S. Department of Treasury, Southwest said.
  • American Airlines said it would receive $5.8 billion — a $4.1 billion grant and a low-interest rate loan of $1.7 billion — but it didn't release details about stock warrants issued to the government.
  • American said it also plans to apply for a separate loan of $4.75 billion from a different tranche of U.S. Treasury funds.

The $25 billion payroll support program for passenger airlines was part of the more than $2 trillion coronavirus relief package passed by Congress last month.

  • The grants are intended to prevent furloughs and pay cuts through Sept. 30.
  • Conditions include limitations on stock buybacks, dividends and executive compensation.

The big picture: Air travel has collapsed in the wake of stay-at-home orders across much of the nation, pummeling the airline industry.

Congress set aside a total of $58 billion in aid to the airline industry as part of the relief package passed last month.

  • $25 billion in grants for passenger airlines to payroll support.
  • $25 billion in loans for passenger airlines.
  • $4 billion in grants and $4 billion in loans for cargo carriers.
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