Mnuchin Asks Airlines to Propose Financial Stake in Aid Bid

(Alex Kraus/Bloomberg News)

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Airlines will be required to propose up-front how the federal government could retain financial stakes in their companies in exchange for a share of $61 billion in coronavirus aid designated for the industry, according to guidelines released by the Treasury Department.

The assistance is aimed at helping U.S. carriers stay afloat and continue to pay workers, as companies struggle with a near 90% drop in passenger traffic because of the widening pandemic.

Instructions for applying for aid were posted by the Treasury late March 30, just days after President Donald Trump signed the $2.2 trillion stimulus package into law.

A Standard & Poor’s index of major U.S. airlines climbed 2.2% at 9:58 a.m. in New York on March 31, led by Alaska Air Group Inc. The industry gauge dropped 51% this year through March 30, compared with a 19% decline in the S&P 500.

The legislation negotiated by Treasury Secretary Steven Mnuchin with top U.S. lawmakers includes as much as $32 billion in payments for airlines to keep employees on their payrolls.

Under the guidelines, recipients must refrain from making any furloughs or layoffs before Sept. 30 of this year. The measure also offers $29 billion in loans to carriers to help fund their operations.

The guidelines say applicants should submit details of existing debt and credit lines with outstanding balances, scheduled debt service for three years and employment levels.

“Each borrower will be required to identify the financial instruments it proposes to issue to the Treasury Department,” the agency says in what it calls preliminary guidelines.

Cutting Service

With the coronavirus pandemic shrinking the number of passengers, some U.S. airlines have announced plans to cut as many as eight out of 10 flights in coming months. American Airlines Group Inc. said March 30 it would apply for about $12 billion in federal assistance.

Under the guidelines, carriers must maintain service on any routes that the U.S. Transportation Department deems necessary.

Airlines must also submit evidence that they have no access to credit elsewhere, a description of covered losses, how they will use the loan proceeds, an operating plan for the rest of 2020 and cost restructuring plans.

The department did not set a deadline but said it would continue to update the guidelines.

Treasury also issued details for airlines seeking payroll support. The pandemic rescue program authorizes Mnuchin to provide $25 billion to passenger airlines, $4 billion for cargo air carriers and $3 billion for contractors in payroll support.

Applications are due April 3. Loan conditions, which were laid out by Congress, include that companies use funds for employee wage and benefits, that they refrain from layoffs, furloughs or reduced wages until Sept. 30, and that no stock buybacks or dividends are paid to shareholders until September 2021.

The 10-page guidelines for airlines points out that the Treasury’s inspector general might audit applicants, and that the agency would report its loans to Congress. The Treasury will decline payroll support for applicants “currently evaluating any action to commence a bankruptcy.”

The application, posted on the Treasury Department’s website, includes a section to note the value of “proposed financial instruments” to compensate the government for payroll support.

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