US airlines must suggest possible compensation for cash grants: Treasury
Airlines must suggest possible compensation in return for government cash assistance and agree to conditions that include not cutting pay or laying off employees through Sept. 30, the U.S. Treasury Department said in guidelines issued on Monday as it prepares to quickly hand out $25 billion.
Congress approved legislation last week authorizing the $25 billion for passenger airlines, as well as $4 billion for cargo carriers and $3 billion in cash for airport contractors like caterers and airplane cleaners.
Under the law, Treasury is supposed to make initial payments of the grants designed to cover payroll costs by next week.
The companies "must identify financial instruments" that would "provide appropriate compensation," the guidelines said, adding that these could include warrants, options, preferred stock, debt securities or notes. The department told applicants to apply by April 3 at 5 p.m. to receive funds as soon as possible. Applications received after April 27 may not be considered.
Other conditions for the cash assistance include limits on executive compensation through March 2022 and no stock buybacks or dividend payments through September 2021.
Airlines may also apply for a separate $29 billion in government loans. Separate Treasury guidelines released Monday for loans said carriers must provide financial instruments "for the benefit of taxpayers, in equity appreciation or a reasonable interest rate premium." Companies critical to U.S. national security can seek loans from a separate $17 billion fund.
Those seeking loans must describe losses they have "incurred or will incur as a result of coronavirus" and detail the cause of the loss such as reduced demand, unavailability of credit or unbudgeted medical expenses. The Treasury Department said in reviewing applications for the cash assistance it will consider the "adequacy of the proposed financial instruments for providing compensation to the Federal Government."
It also said it "may refuse to provide payroll support payments to applicants that have taken, or are currently evaluating, any action to commence a bankruptcy." Major US airlines asked the Treasury department to move quickly to release funds.
They have cut tens of thousands of flights as travel demand collapses amid the coronavirus pandemic and warned that without cash they would need to quickly begin massive furloughs.
The chief executives of American Airlines, Delta Air Lines, United Airlines, Southwest Airlines Co and others wrote in a letter that "given the urgent and immediate need, it is essential that these funds be disbursed as soon as possible."
Treasury Secretary Steven Mnuchin said Friday taxpayers will be "compensated" for providing emergency assistance to air carriers. American Airlines said Monday it will be allocated about $12 billion of the combined cash assistance and government loans.