The US Department of the Treasury has announced today that five airlines have agreed on terms for loans under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Ten American carriers have now signed letters of intent that set out the terms on which the Treasury will extend loans.
Ten US airlines to benefit from CARES Act loans
In a press release issued today, the US Treasury Secretary, Steven T. Mnuchin, announced that a further five US airlines have signed letters of intent agreeing to the terms of loans extended under the CARES Act. Alaska Airlines, Delta Air Lines, JetBlue Airways, United Airlines, and Southwest Airlines may now have access to loans if they are needed.
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Last week, Simple Flying reported that American Airlines, Frontier Airlines, Hawaiian Airlines, Sky West Airlines, and Spirit Airlines had reached agreements with the Treasury. In a statement, Mr Mnuchin said,
“The major U.S. airlines play a vital role in our economy and are critical to domestic and international travel and commerce. These airlines are among the companies most heavily affected by the disruptions to social and economic activity caused by the pandemic.” He added, “We look forward to working with the airlines to finalize agreements and provide the airlines the ability to access these loans if they so choose.”
Under the CARES Act, the US Treasury has the authority to extend up to $25 billion in liquidity to airlines and associated businesses. The loans will help to preserve the US aviation industry and also protect taxpayers.
Terms of loans under the CARES Act
Title IV of the CARES Act allows the Treasury to make loans to airlines to cover losses incurred as a result of the COVID-19 crisis. However, to secure loans under the act, carriers are required to provide appropriate compensation to taxpayers in the form of equity interests, senior debt instruments, or warrants.
The participating companies must also commit to maintaining staffing levels as well as limiting employee compensation, share repurchases, and dividends.
Some airlines get bailouts while others fold
The access to loans for US airlines follows similar bailout packages by governments around the world amid the worst crisis to ever hit the aviation industry. Accusations have been made that the bailouts are unfair.
Ryanair’s CEO, Michael O’Leary, has been particularly vocal, accusing the Lufthansa Group of being greedy, and questioning tax breaks for French and Swedish carriers. He feels that subsidies by EU governments are distorting competition.
On the other hand, Martin Gauss, CEO of airBaltic, has defended airline bailouts, making comparisons to wartime recovery. He suggested that allowing airlines to fail could have devastating consequences for their countries.
Several airlines have entered administration in the wake of the COVID-19 crisis. Among these high-profile carriers are Virgin Australia and Air Mauritius. As many airlines slowly open up routes, President of Emirates, Sir Tim Clark and Wizz CEO, Jozsef Varadi, have predicted that more airlines will go bust. David Calhoun, CEO of Boeing, was criticized for his prediction that a prominent US airline would fail.