Alaska Airlines has announced details of the government assistance it will receive through the Payroll Support Program (PSP) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The April 14th release indicates that the airlines will receive a total of $992 million in funding to support the airline.
Alaska and Horizon to receive $992 million in funding
The $992 million will come through the Payroll Support Program. Of this amount, $267 million will come in the form of a loan that must be repaid to the government. Also, the US Department of Treasury will have the right to purchase 847,000 non-voting shares of the Alaska Air Group for $31.61 per share.
The funding will go to support 70% of the airline's budgeted costs through September 30th. Through this grant, no employees will face involuntary furloughs or pay cuts. Through September 30th, 2021, there will be a suspension of dividends and share buybacks. Finally, until March 24th, 2022, the terms of the financing dictate limits on executive compensation.
Chairman and CEO of Alaska Air Group, Brad Tilden expressed his appreciation of the support and offered the following statement about the airline's employees:
"Our employees are tremendous, serving our guests and running a safe and reliable operation every day. They've continued to do so through this crisis, to safely fly those who need to travel, deliver critical groceries, supplies, and other cargo across our network, including remote parts of Alaska. This federal support enables us to take care of them through a time of near-zero revenue."
Alaska to apply for a further loan
Alaska and Horizon will apply for an additional $1.128 billion in federal loans also through the CARES Act. This loan will support Alaska's operations and must be paid back in full.
Maintaining minimum service
Alaska Airlines must maintain minimum services as outlined by the Department of Transportation. Because Alaska Airlines has a market share of less than 10% per the Bureau of Transportation Statistics, the amount of service it must provide is less than that of the other major US carriers. Alaska Airlines only needs to service a destination three times per week for cities it currently flies to five or more times per week. To cities receiving service less than five times per week, the airline only needs to provide one flight per week.
Under this program, Alaska Airlines will need to continue to provide service to some of America's most isolated communities in the state of Alaska. Although there may not be enough passenger demand, some of those communities rely on the airline to bring in much-needed cargo.
CARES Act funding to airlines
Alaska Airlines joins American, Delta, and United in receiving government aid. The terms of receiving assistance are mostly similar across these airlines with variations based on the airline's cash needs. Needless to say, this funding will help save some jobs in the industry and keep airlines afloat.
American, Delta, and United, however, are receiving support five times that of Alaska Airlines. This is in part due to the airline's smaller size in the United States. The carrier mainly operates out of the West Coast of the US and Alaska. However, Alaska does have a presence on lucrative transcontinental flights.
Overall
Alaska Airlines becomes the next airline to receive government assistance under the CARES Act. $992 million in payroll support will keep the airline from furloughing employees or cutting pay through September 30th with additional conditions. However, the carrier will apply for a further $1.128 billion to support its operations.
What do you make of the support Alaska Airlines is getting? Let us know in the comments!