The United States Congress has approved a $50 billion relief package for US airlines as part of the Coronavirus Aid, Relief, and Economic Security (CARES) act. Half of this money was to be in the form of loans, and half in payroll cash grants. On Friday, the Treasury told airlines it is going to want more of its money back.
More loans than grants
In a move that has caught many airline executives by surprise, US Treasury Secretary Steven Mnuchin informed them on Friday that the government wants them to repay more of the coronavirus relief package than what was initially communicated.
As part of the Coronavirus Aid, Relief, and Economic Security (CARES) act, the US government is providing airlines with a total of $50 billion in aid. $25 billion of that was supposed to be in the form of loans, and the other half was supposed to be payroll grants to cover employee wages.
Now, the Treasury says it wants some airlines to repay some of the $25 billion payroll grants. As reported by One Mile At A Time, the suggestion is that for airlines getting more than $100 million in assistance, 30% of the payroll grants would have to be repaid in the form of low-interest loans. This means that $17.5 billion would be grants, and the other $7.5 billion would be loans.
“It is our objective to make sure, as I have said, that this is not a bailout, but to make sure that airlines have the liquidity to keep their workers in place,” Treasury Secretary Steven Mnuchin told CNBC in a statement on Thursday.
Caught by surprise
This new structure has caught airline executives by surprise. One such executive, wishing to remain anonymous, told CNBC that: “This is not what Congress approved. The aid was supposed to be $25 Billion in cash grants and $25 Billion in loans.”
The President of the Association of Flight Attendants union, Sara Nelson, told the same publication that this move could lead to airlines going bankrupt, and that: “The Treasury Department is destabilizing the industry, not helping save it.”
Airlines would offer warrants equal to 10% of the loan amount. The strike price of the warrants is the price of the respective airline’s stocks at the close of trading on Thursday. Interest rates would rise over time if repayment doesn’t occur.
No lay-offs until September
The cash grants communicated on Friday come with further stipulations. These include no mass lay-offs of staff until the 30th of September, a condition all carriers have agreed to meet. However, there could now be a danger of some airlines choosing not to accept the grants, in order not to take on more debt.
Instead, they could start laying off staff immediately to save money. Although it is unlikely anyone would refuse the CARES package, it remains to be seen if there is enough wriggle room to satisfy all parties.
Do you think the US government is right in requesting that payroll grants to some extent be repaid? Or is the industry right in being upset? Let us know your thoughts in the comments.