Airlines wait as Treasury applies strings to pandemic payroll aid

The U.S. Treasury Department and leading airlines continued negotiating Monday over terms of coronavirus-relief payments, with the Treasury sticking to a proposal that could give the government an ownership stake in the nation’s leading carriers.

Treasury Secretary Steven Mnuchin said agreements with the airlines over terms of the $25 billion in payroll assistance could come soon.

“I think you will see very quickly decisions coming out. I’m very pleased with the discussions,” Mnuchin said at a White House briefing.

The Treasury Department payments were supposed to begin a week ago. The major holdup in recent days was the Treasury’s insistence that 30% of the aid for larger airlines would be in the form of loans that must be repaid and with the government getting warrants equal to 10% of the loan amount, according to two officials familiar with the matter.

The amount of each airline’s stock that the government could get would depend on several factors including 2019 labor costs and recent stock market value.

Raymond James airline analyst Savanthi Syth estimated that if the government exercises the warrants, it could wind up with 3% of American Airlines, 2% of United Airlines, and 1% each of Delta Air Lines and Southwest Airlines. Those four carriers control more than 80% of the U.S. air travel market.

The airlines have fought the proposal. They thought they had a better deal last month: Congress agreed to give passenger airlines $25 billion in cash grants to cover payroll costs for six months, through September.

But Mnuchin spelled out Treasury’s proposal to CEOs of the six largest airlines on Friday. That surprised the airlines.

“We believe the law indicated that the (direct aid) funding was to be only in grants—which is considerably more effective for our employees—and not a combination of grants and loans,” a spokeswoman for the trade group Airlines for America said in a statement. “This federal relief is critical to getting our employees paid and preventing furloughs right now, especially as our country is experiencing historically high unemployment claims.”

As days passed after the Treasury’s deadline to begin making payments, airline labor union officials grew more worried. They urged the Treasury to start distributing the grants, which were due to be paid out beginning April 6, 10 days after President Donald Trump signed a $2.2 trillion coronavirus-relief measure that included help for the airlines. Leaders of 11 unions pressed Mnuchin on the matter in a letter, writing that if the grants are delayed any longer, workers will lose their jobs “and our aviation industry will collapse.”

“This is not free money to the airlines, it’s money that is intended to keep people on the job and their paychecks going,” Sara Nelson, president of the Association of Flight Attendants, said in an interview. “The pace of this is seriously concerning. There are smaller carriers that are not going to make payroll this week without that money.”

Mnuchin has said that taxpayers must be compensated for helping the airlines. That approach might help the Trump administration deflect criticism that aid to the airlines is a bailout.

After a hugely profitable decade, the airlines now are staggering under a plunge in travel caused by the coronavirus outbreak. Delta Air Lines is carrying 5% as many passengers as it did a year ago. The number of people going through security checkpoints at U.S. airports has dwindled from more than 2 million a day to fewer than 100,000—a level of travel more common in the mid-1950s, the dawn of the jet age.

The Treasury Department said last week that it received applications for payroll grants from more than 230 airline companies, mostly small ones that want less than $10 million. The department said 12 airlines are likely to get at least $100 million.

Airline stocks fell Monday on indications that the carriers were not having an easy time getting federal help. United Airlines and American Airlines both saw their stock fall 8%, while Southwest fell 6% and Delta dropped nearly 5%.