Airlines wait as Treasury applies strings to payroll aid

The Treasury Department and leading airlines continued negotiating Monday over terms of coronavirus-relief payments, with Treasury sticking to a proposal that could give the government an ownership stake in the nation’s leading carriers. Treasury Secretary Steven Mnuchin said agreements with the airlines over terms of the $25 billion in payroll assistance could come soon.

“I think you will see very quickly decisions coming out. I’m very pleased with the discussions,” Mnuchin said at a White House briefing. The Treasury Department payments were supposed to begin a week ago. The major holdup in recent days was Treasury’s insistence that 30% of the aid for larger airlines would be in the form of loans that must be repaid and with the government getting warrants equal to 10% of the loan amount, according to two officials familiar with the matter.

The amount of each airline’s stock that the government could get would depend on several factors including 2019 labor costs and recent stock market value.

Raymond James airline analyst Savanthi Syth estimated that if the government exercises the warrants, it could wind up with 3% of American Airlines, 2% of United Airlines, and 1% each of Delta Air Lines and Southwest Airlines. Those four carriers control more than 80% of the U.S. air travel market.

The airlines have fought Treasury’s proposal. They thought they had a better deal last month: Congress agreed to give passenger airlines $25 billion in cash grants to cover payroll costs for six months, through September.

But Mnuchin spelled out Treasury’s proposal to CEOs of the six largest airlines on Friday. That surprised the airlines.

“We believe the law indicated that the (direct aid) funding was to be only in grants - which is considerably more effective for our employees - and not a combination of grants and loans,” a spokeswoman for the trade group Airlines for America said in a statement. “This federal relief is critical to getting our employees paid and preventing furloughs right now, especially as our country is experiencing historically high unemployment claims.”

As days passed after Treasury’s deadline to begin making payments, airline labor union officials grew more worried. They urged Treasury to start distributing the grants, which were due to be paid out beginning April 6, 10 days after President Donald Trump signed a $2.2 trillion coronavirus-relief measure that included help for the airlines. Leaders of 11 unions pressed Mnuchin on the matter in a letter, writing that if the grants are delayed any longer, workers will lose their jobs “and our aviation industry will collapse.” (AP)