Delta Set To Take $3 Billion In Payroll Support In New Deal

Atlanta-based Delta Air Lines has worked out a deal to secure $3.1 billion in payroll support as the airline continues to recover from the ongoing COVID-19 pandemic. According to a Securities and Exchange Commission (SEC) filing, Delta Air Lines has entered into the Payroll Support Program 3 Agreement with the US Treasury Department.

Delta B737-900
Delta can only use the money to pay employee salaries and benefits. Photo: Getty Images.

Delta says the funds provided by the US Treasury Department will be used exclusively to pay employees salaries and benefits. The news of Delta Air Lines accessing the fund will be a relief to the carrier’s many employees who are hoping that a busy summer travel season will help secure their jobs.

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The money is a low-interest loan.

According to financial markets crowd-sourced content service provider Seeking Alpha, the deal terms are as follows:

“The relief payments are expected to consist of approximately $2.2 billion in grants and $890 million in an unsecured 10-year loan. Delta received the first installment of $1.5 billion under the Agreement on April 23, 2021, and expects to receive the balance in the June quarter.

“The loan bears interest at an annual rate of 1.00% for the first five years (through April 23, 2026) and the applicable secured overnight financing rate plus 2.00% per year in the final five years. Approximately 70% of the payment received on April 23, 2021, was in the form of a grant, and approximately 30% was in the form of an unsecured loan.

“Delta issued a promissory note to Treasury on April 22, 2021, for approximately $430 million with respect to the term loan, which will increase to its full principal amount as the balance of payroll support payments is received.”

A third relief bill was passed in March

With the previous payroll support program due to expire, and airlines warning of massive layoffs, both houses of the US Congress passed a third coronavirus relief package for the airline industry in March.

The Treasury was directed to allow qualifying airlines to tap a $14 billion fund set up exclusively for the continued payment of airline employee wages, salaries, and benefits. Unlike previous legislation, the payroll support was only available to airlines who had previously received money under the Consolidated Appropriations Act for 2021 (CAA).

Delta Air Lines A330-300
Delta cannot lay off any employees until after September.Photo: Getty Images

The $14 billion Payroll Support Program 3 will be available to qualifying airlines until the end of September. Airlines taking advantage of the low-interest loans must also abide by the following conditions:

  • No furloughing of employees
  • No laying off of employees
  • No cutting of employee pay before September 30
  • No buying back of company shares
  • No dividends to be paid to investors
  • No raising of executive compensation beyond certain limits

Delta is betting on the summer

For the first quarter of the year, Delta reported a net loss of $1.18 billion on $4.15 billion in revenue but said it expects to break even in June. When speaking with CNBC about the airlines’ first-quarter results CEO, Ed Bastian said:

“When I look at the first quarter, what’s been clear to us is that our business has made a turn. We’ve seen a huge surge in bookings just over the last couple of months.”

Ed Bastian
Delta CEO Ed Bastian thinks that the airline will be breaking even by June. Photo: Delta

Delta and other American carriers continue to lose money but are now becoming more upbeat on summer travel. Travel restrictions are continuing to ease as more Americans get vaccinated. In other positive news for Delta Air Lines, the European Union has suggested that American’s who have been vaccinated will be able to travel to Europe.

Do you see a summer rebound happening for Delta Air Lines? Please tell us what you think in the comments.