Five airlines finalise Treasury loans

The US Treasury on Thursday announced it had reached an agreement with five major airlines on the terms of loans to rescue their businesses after the coronavirus pandemic badly dented air carriers.

The $2.2 trillion CARES Act stimulus package passed in late March provided for $25 billion to be lent to the airline industry, but carriers were hesitant to take the money for fear of draconian conditions.

American Airlines, Frontier Airlines, Hawaiian Airlines, Sky West Airlines and Spirit Airlines finally agreed to the government’s terms, the Treasury said in a statement. Discussions are continuing with other companies in the sector.

“We are pleased that major air carriers intend to use this important programme and for Treasury to use its authority under the CARES Act to provide muchneeded financial assistance, while ensuring appropriate taxpayer compensation,” Treasury Secretary Steven Mnuchin said.

The Treasury did not provide details of the loan terms, saying only that it required borrowers to provide warrants, which are financial instruments that can be converted into shares, or other forms of debt or equity.

Borrowers must also comply with conditions like maintaining employment and not paying employees above set levels, along with temporarily suspending the payment of dividends and share buybacks.

These loans are on top of another $25 billion package paid out by the government in exchange for a commitment by the airlines not to cut jobs until after September 30.

American confirmed on Thursday that it had signed a letter of intent with the Treasury for a $4.75 billion loan, and hopes to finalise the terms by the end of September.

Boeing correctly anticipated the trend with the twin-engine 777 and the 787 Dreamliner. With prodding from Joe Sutter, a famed engineer who’d led the original 747 programme, the planemaker decided to develop a relatively inexpensive upgrade of the four-engine plane to steal sales from the A380.

“The strategy would have been successful, had the 747-8 not been bedeviled by early mismanagement, blowing its budget and deadlines,’’ said Richard Aboulafia, an analyst with Teal Group.

“The Chicago-based company has lost about $40 million for each 747 since 2016, when it slowed production to a trickle, making just six jets a year,’’ Jefferies analyst Sheila Kahyaoglu estimated.

All told, Boeing has recorded $4.2 billion in accounting charges for the 747-8, which has been kept alive as a freighter. The 747 notched its last order as a passenger jet in 2017 — for Air Force One.

“Boeing’s jumbo freighters will continue to ply the skies for decades after production stops,’’ said Aboulafia.

But he’s dropped the passenger-only A380 from his forecasts. “It’s going to have the shortest lifespan of any type in history. I’d be shocked if there’s still an A380 in service in 2030.”

Airbus disagreed. “We will see the A380 continue flying for many years,” the planemaker said by e-mail.

But the coronavirus pandemic is hastening the end of the behemoths as people movers. With travel not expected to fully recover until mid-decade, airlines are culling ageing jetliners and four-engine jumbos from fleets to limit spending.

“About 91% of 747s and 97% of A380s are parked,’’ Credit Suisse estimated last month.

Boeing had been preparing for years to wind down the 747 programme, and its sales team has been sounding out customer interest in a potential freighter version of the 777X.

If such a model goes forward, it would bolster flagging sales of the largest twin-engine aircraft in the company’s line-up.