Stimulus bill awards $58 billion to stabilize airline industry

Newark International Airport

The U.S. Senate late Wednesday passed a $2 trillion coronavirus rescue bill that includes almost $60 billion in aid for the airline industry, including all-cargo carriers, and $10 billion for airports, primarily to preserve jobs until economic activity returns to normal.

The money comes with strings attached, but not as many as Democrats originally sought.

The most immediate help is in the form of a $32 billion in direct grants to be used exclusively for keeping payroll intact as of March 24, split $25 billion and $4 billion for passenger and cargo carriers, respectively, plus $3 billion for contractors that perform catering, ground handling and other services. Companies don’t have to pay back the money as long as they don’t make layoffs or cut benefits through Sept. 30.

Airlines also may not buy back stock or pay dividends until after September  2021, and the Department of Transportation is authorized to force carriers to maintain all the service they were scheduled to provide as of March 1 through 2022.

The money for individual carriers will be apportioned based on the wages paid for the April-September period last year.

The Treasury Department is supposed to issue rules within five days of the bill being signed, which likely will happen Friday or Saturday, and then start cutting checks within 10 days.

Congress also set aside $25 billion in loans and loan guarantees for passenger carriers and ticket agents, and an additional $4 billion for cargo airlines — part of a $500 billion pot for large businesses.

The loans, which are good for up to five years, can only be made if Treasury determines that regular credit is not reasonably available and that the applicant is in jeopardy of going out of business. Interest rates must reflect market risk and be comparable to the precoronavirus rates.

Conditions that apply to all loans include no stock buybacks and dividends, and maintaining employment levels “to the extent practicable,” with headcount reductions limited to no more than 10% for the duration of the loan. Corporate executives making more than $425,000 can’t get raíses or large exit packages for one year after the end of the loan.

The Air Line Pilots Association hailed the emergency aid. “ALPA pilots applaud the fact that the economic relief package contains provisions to limit furloughs, protect our contracts, and ensure that federal assistance is used to pay airline employees’ salaries and benefits, not executive compensation or corporate stock buybacks,” President Joe DePete said in a statement. 

For aviation loans, the U.S. government will receive nonvoting warrants or equity interests in the company, which can be sold at a later date.

Most airlines have sought other forms of financing — American Airlines, for example, issued notice Wednesday that it had borrowed $1 billion from its credit line — and will use the federal loans “more as a backstop than a lifeline,” Cowen bank’s lead airline analyst, Helane Becker, said in a message to clients.

Conditions that were dropped from the final measure included $1 billion for an airline version of “cash-for-clunkers” to buy up older planes that burn a lot of fuel, as well as a requirement for carriers and contractors to have a $15 minimum wage, and labor representation on airline boards, according to Jeff Davis, senior fellow at the Eno Center for Transportation.

Congress also suspended collection of excise taxes paid by passengers that go into the aviation trust fund, which is already taking in much less money because of the limited amount of passenger travel taking place. 

Airports, which received $10 billion of their own, opposed a tax holiday for airlines because much of the money is delivered to airports through a grant program for capital expenditures.

Airport funding is largely designed to prevent airport authorities from defaulting on interest payments later this year. Primary hubs have to maintain at least 90% of their employment levels through the end of the year to be eligible for the money, which can be used for operating purposes.

Meanwhile, Senate Appropriations Chairman Richard Shelby, R-Ala., was able to tack onto the must-pass bill a provision that would take the Harbor Maintenance Tax off budget, so that money paid by importers to help with dredging the nation’s ports won’t have to compete with other types of appropriations and it can go for its intended purpose.

Another provision suspends the weight limits on interstate highways through Sept. 30 for trucks carrying emergency supplies, such as respirators and ventilators, so long as the national emergency declaration is still in effect.

The House is expected to vote on the measure Thursday or Friday, although there are doubts about how that will happen. The House has already adjourned and members would have to return to Washington with limited access to air travel and many people under mandatory, or self-imposed, quarantines in their homes. Congress has yet to adopt remote voting. Some Democrats are unhappy with the limited amount of accountability for corporations in the bill, so getting unanimous consent – an informal poll that would avoid having to take a formal vote – is unlikely.