Airline Loan Applications May Start Soon, U.S. Government Says
WASHINGTON—The U.S. Treasury Department’s updated guidance on aviation-specific loans available via the $2 trillion stimulus package indicated that applications will start being accepted soon but leaves several large questions about the $46 billion program unanswered.
Last month’s Coronavirus Aid, Relief and Economic Security (CARES) Act earmarks $29 billion for airlines—$25 billion for passenger carriers and $4 billion for cargo operators. Repair stations and ticket agents also are eligible for loans—initial Treasury guidance issued along with the law said the money would come from the passenger-airline portion.
Another $17 billion will go to “businesses critical to maintaining national security,” which the act does not define. Additional Treasury guidance issued April 6 adds no details here, saying only that the agency “is developing application and guidance materials” and “expects to release them in the near future.”
Loans are intended to serve as “liquidity to offset covered losses, which include losses incurred directly or indirectly as a result of the coronavirus pandemic, as determined by the Treasury Department,” the new guidance said.
The new guidance reiterates many requirements spelled out previously by Treasury. Among them: airlines opting for the loans must maintain minimum levels of air service. Companies accepting loan funds also must maintain employment levels as of March 24, 2020 through the end of September 2020 “to the extent practicable.” Reductions of 10% or more will not be permitted.
Each applicant also must propose protection for taxpayers—a warrant or “equity instrument” for public companies, or similar collateral, including a senior debt instrument, for private entities. “Together with the other data and information provided in the applications, the Treasury Department will develop standards for adequate and appropriate taxpayer protections,” the department said.
Another prerequisite: applicants should not have credit “reasonably available” elsewhere. “The Treasury Department and its financial and legal advisors will take into account evidence from the prospective borrower’s particular circumstances, including its relationships with existing and potential creditors, as well as general market conditions,” the new guidance said.
The latest guidance includes a draft paper application. Treasury said it was not accepting applications as of the start of business April 7 and planned to have a web-based application up “in the coming days.” The agency “does not intend” to make applications public.
Treasury is not committing to timelines on how long application reviews will take, or when money would be dispersed. It also said that, if any of the loan pools are not enough to cover approved applicants, it will allocate funds in “a fair and equitable fashion.”
CARES also sets aside $25 billion in payroll grants for airlines and other eligible aviation businesses. The grants must be used for payroll expenses, but otherwise come with fewer strings, and do not have to be repaid so long as recipients follow the relevant rules.
Carriers began submitting grant applications as soon as the window opened on April 3. For some other businesses, the extent of grant eligibility remains unclear.
The Aeronautical Repair Station Association (ARSA) has asked Treasury to weigh in on whether all FAA-certificated MRO providers are eligible for grants. The statute specifies eligible businesses as working for commercial air carriers or their subcontractors and being located on an airport. ARSA in an April 2 letter to Treasury said that not all MRO shops contracted with airlines are located on airports and asked the agency to adopt the FAA’s definition of a contractor, which does not factor in physical locations. “[A] repair station should be able to access the resources regardless of its location if it is under contract with an airline, a contractor or another subcontractor to perform maintenance functions for any one or more of these entities on engines, components, etc. removed from air carrier aircraft,” ARSA said.
A spokesman for the association said April 7 that it was still awaiting Treasury’s response.
While CARES sets up pools of money for commercial aviation, most smaller industry businesses are pursuing other CARES act funding for stopgap cash. The Paycheck Protection Program sets aside $349 billion for small businesses to cover at least two months of payroll and certain other expenses and is set up to get money out quickly. The application window opened April 3, but some technical hiccups have prevented banks from getting applications, which are sent through the Small Business Administration (SBA) website, in a timely manner.
Even with the early challenges, the PPP is shaping up to be the quickest way for small aviation businesses to get money, said Modification and Replacement Parts Association president Jason Dickstein. Other SBA programs that CARES is tapping, such as the Economic Injury Disaster Loan (EIDL), are not tailored to provide quick cash injections to distressed businesses. CARES did add a quick-turn EIDL loan advance to the program, but it only pays up to $10,000.