U.S. Airlines Reveal Details of Government Aid Received From CARES Act
Updated: Apr 22, 2020
Late Tuesday, several U.S. carriers revealed the details of their expected aid from the Coronavirus Aid, Relief and Economic Security (CARES) Act. The package includes a series of payroll support grants and low interest loans in exchange for stock warrants.
Yesterday (April 14, 2020), U.S. carriers including American Airlines, Delta Air Lines, Southwest Airlines, Alaska Airlines and JetBlue announced details of the aid they expected to receive from the Coronavirus Aid, Relief and Economic Security (CARES) Act. The initial disbursements come in the form of payroll support grants and low interest loans in exchange for stock warrants. Airlines have agreed to keep employees on their payroll until September 30, 2020 without involuntary furloughs and pay cuts as well as limitations on share repurchases, dividends and executive compensation.
American Airlines announced Tuesday that they will receive a total of $5.8 billion from the Payroll Support Program (PSP) of the U.S. CARES Act including a 4.1 billion grant and a $1.7 billion low interest loan. The carrier also expects to apply separately for a loan from the U.S. Treasury for an additional $4.75 billion. Commenting on the aid package, American Airlines Chairman and CEO Doug Parker said in part,
“The Payroll Support Program recognizes the extraordinary dedication of our entire team, and importantly, sustains the critical air service being provided by our frontline team members. Those team members are our heroes, and we are elated that this program will enable us to continue to employ and pay our team while they fly through this period of depressed consumer demand. This program would not have come about without the collaborative, bipartisan approach that was undertaken, and we applaud the Administration, Secretary Mnuchin, Secretary Chao and congressional leadership for their efforts and vision. We are also thankful for the extraordinary support of out team and the unions that represent them.”
The PSP requires American Airlines to avoid furloughs and continue to pay employees until September 30, 2020. Additionally, the airline has agreed to limitations on share repurchases and dividends. An undisclosed number of stock warrants will be held by the U.S. Treasury with a previously set strike price.
Delta Air Lines
In an internal memorandum to employees Tuesday evening, Delta Air Lines CEO Ed Bastian detailed the emergency relief received by the carrier under the U.S. CARES Act Payroll Support Program (PSP). Delta will receive a total of $5.4 billion, including a 10 year low-interest loan of $1.6 billion in exchange for stock warrants giving the U.S. Treasury the right to acquire approximately one percent of Delta’s shares over the next five years at the strike price of $24.39. In Tuesday’s announcement, Delta Air Lines CEO, Ed Bastian said in part,
“We’re thankful to members of Congress and the Administration for recognizing the importance of our people and our industry. The funding, along with self-help measures we’ve taken, will prevent furloughs and pay rate reductions through the end of September, despite the 95 percent drop we’ve seen in passenger traffic. Since the pandemic began, we have taken down 80 percent of our schedule; consolidated airport facilities and closed many Delta Sky Clubs; paused non-essential maintenance and capital projects; reduced ground-based merit and hourly schedules by 25 percent; cut pay for officers and director-level employees; and gratefully accepted a remarkable 35,000 voluntary leaves of absence by Delta people. We also raised over $3 billion in new cash in the March quarter.”
Southwest Airlines announced Tuesday that will receive a total of more than $3.2 billion from the U.S. CARES Act Payroll Protection Program (PSP) including a direct grant of $2.3 billion as well as a nearly $1 billion ten year low-interest loan. In exchange, the U.S. Treasury will receive 2.6 million warrants to acquire Southwest Airlines stock at a previously set strike price. As mentioned, the program prohibits involuntary employee furloughs through September 30, 2020. Share repurchases and dividends have also been suspended until September 30, 2021 and limits have been placed on executive compensation until March 24, 2022. The government aid will allow Southwest to protect the jobs of over 60,000 employees and ensure the airline maintains its 49-year history of never furloughing a single team member. In Tuesday’s announcement Southwest Airlines’ Chairman and CEO Gary Kelly said,
“We are extremely appreciative of the work of our federal leaders. President Trump, Secretaries Mnuchin and Chao, and the entire United States Congress recognize the unprecedented health and economic crisis that our nation is currently facing due to COVID-19, as well as the importance of our airlines to our overall national economy, the supply chain, the nation’s future recovery after this crisis subsides. As we are now in the implementation phase of the CARES Act, we applaud the quick action by the U.S. Department of Treasury to infuse liquidity into the economy and try to keep businesses open and people on the job – and that certainly includes the airlines and our Employees.”
Alaska Airlines (and Horizon Air)
Alaska Airlines announced Tuesday that they will receive a total of $992 million from the U.S. CARES Act Payroll Support Program (PSP) including a ten year low-interest loan of $267 million. In addition to the previously mentioned terms which apply to all carriers, Alaska Airlines will grant the U.S. Treasury warrants to purchase 847,000 non-voting shares at the strike price of $31.61/share. Additionally, the carrier has informed the U.S. Treasury that they intend to apply for an additional $1.128 billion loan under a separate program authorized by the CARES Act. In Tuesday’s announcement, Alaska Air Group’s Chairman and CEO, Brad Tilden said in part,
“We are grateful and humbled by this support. This aid will bring immediate and sorely needed liquidity to the airline industry and will enable all airlines – including Alaska – to continue serving our customers and to keep our people at work, while we adjust to an extraordinary reduction in demand. All of us at Alaska want to express our deep appreciation to President Trump and Vice President Pence, to Secretaries Mnuchin and Chao, to those working at the Department of the Treasury, and to all members of Congress – especially members from Alaska, Washington, Oregon, California, and other key states we serve. These leaders have works around the clock to support the aviation workforce and out nation’s critical transportation infrastructure.”
JetBlue announced Tuesday that they will receive a total of $935.8 million from the U.S. CARES Act Payroll Support Program (PSP) including $658.1 million in direct grant funds and a ten year low-interest loan of $250.7 million. The aid will allow JetBlue to keep their 23,000 team members employed through September 30, 2020. In addition to the other restrictions on share repurchases, dividends and executive compensation, JetBlue will also grant warrants to the U.S. Treasury for the purchase of an undisclosed number of the carrier’s shares at a predetermined strike price. In Tuesday’s announcement, JetBlue’s Chief Executive Officer, Robin Hayes said in part,
“While I am happy we are receiving this much-needed cash for payroll now, it adds to the significant debt we are taking on as we burn through our cash reserves. Thankfully, we entered this crisis with one of the stronger balance sheets in the industry, but we will come out of this with a significant debt to pay down. With flights below 150 daily and our aircraft now only about 10% full, we will have far less work and fewer hours for every salaried and hourly Crewmember. I know this adds financial stress at a time when we are also worried about each other’s health and safety, but I am thankful we are in a position to provide dome level of pay for everyone using the payroll support funds.”
Update: April 16, 2020
United Airlines announced on Wednesday (April 15, 2020) that they expected to receive $5 billion from the U.S. CARES Act Payroll Support Program (PSP) including a direct grant of $3.5 billion and a long-term loan of approximately $1.5 billion. As part of the agreement, the carrier will not furlough team members through September 30, 2020 and will adhere to terms related to a temporary suspension of share buybacks and dividends as well as executive compensation. United Airlines will also grant the U.S. Treasury warrants to purchase around 4.6 million company shares at a predetermined strike price. In Wednesday’s announcement, United Airlines’ Spokesperson, Frank Benenati said,
“We thank Congress and the Administration for quickly passing legislation to protect the paychecks of tens of thousands of United Airlines employees and look forward to completing the final agreements with the Treasury Department in the next few days. These funds will cover a portion of our pay and benefits costs through September 30, and we are thankful for the support provided to our employees and their families by the CARES Act. This financial support is critical to our people, who are ensuring air service to communities throughout the country and supporting the shipment of much-needed medical supplies and travel of health care professionals around the globe.”
Late Wednesday, United Airlines’ Chief Executive Officer Oscar Munoz and President Scott Kirby published a joint statement to United’s nearly 100,000 team members. The full text of the message is available here.
Update: April 20, 2020
Mesa Air Group, Inc.
Today, regional carrier Mesa Air Group, Inc. (Mesa Air) announced that they expect a total of $92.5 million under the U.S. CARES Act Payroll Support Program (PSP). Because the total is under the $100 million threshold set by the Department of the Treasury, the entirety of the loan will be in the form of a grant and the company will not be required to provide stock warrants. In Monday’s announcement, Mesa Air Group’s Chairman and CEO, Jonathan Ornstein said in part,
“We’d like to thank President Trump and Treasury Secretary Mnuchin for taking decisive action at this critical juncture…” Mr. Ornstein continued, “This aid may well serve as the bridge that allows the industry to survive and give us the means to continue to provide the safest mass transportation system in history. Most importantly, we’d like to thank all our employees, particularly those on the front lines who are continuing to provide outstanding service in the face of this crisis.
As part of the agreement, Mesa Air may not institute any involuntary furloughs or pay cuts until October 1, 2020. Additionally, the company cannot repurchase company shares until September 30, 2021 and executive compensation will be limited until March 24, 2022. Mesa Air offers scheduled service to 135 cities in 39 states, Washington DC, Canada, Mexico and the Bahamas, averaging 662 daily departures. The regional airline currently operates a fleet of 145 aircraft and has around 3,600 employees. Mesa Air operates flights as American Eagle and United Express, pursuant to capacity purchase agreements with the mainline carriers.
Update: April 22, 2020
Allegiant Travel Company
Allegiant Travel Company announced on Tuesday (April 21, 2020) that they will receive a total of $171.9 million from the U.S. CARES Act Payroll Support Program (PSP), including a $21 million low-interest 10-year loan. In return, the company will issue warrants to the U.S. Treasury Department for the right to purchase 25,890 shares of common stock at a predetermined strike price with a cash settlement right at the carrier’s option. In Tuesday’s announcement, Allegiant’s Chairman and Chief Executive Officer, Maurice J. Gallagher, Jr. said,
“The Payroll Support Program recognizes the essential role our team members play in the country’s air travel infrastructure. Their dedication in the face of the unprecedented crisis brought by the COVID-19 outbreak has been tremendous – and their continued work will be critical to our nation’s successful recovery in the months to come. On behalf of our entire team, I’d like to applaud the work of the administration, Treasury and Department of Transportation, our hometown Nevada delegation, leadership of both houses of Congress and the Aviation Subcommittees for both the Senate and the House for taking swift, bipartisan action to protect the jobs of our frontline team members. We thank you for your support and look forward to working with you to ensure Americans can once again be together, connecting with family and friends and conducting the business of our great nation.”
Founded in 1999, Allegiant links passengers from small to medium cities to world-class leisure destinations with all non-stop flights and industry-low average fares. The company operates 450 routes nationwide and offers base airfares that are often half the price of a typical roundtrip ticket.
Source(s): American Airlines, Delta Air Lines, Southwest Airlines, Alaska Airlines, JetBlue, United Airlines, Mesa Air Group, Allegiant Travel Company
Editor's Note: This article includes airlines who have published details of the aid they will receive from the U.S. CARES Act Payroll Support Program (PSP) at the time of writing and is not exhaustive. Many other U.S. carriers are also participating in the program and we will update this article when they publish the details.