U.S. Treasury Closes CARES Act Loans To Seven Airlines
The U.S. Treasury Department closed loans to seven passenger airlines on Sept. 30, provided for as part of the CARES Act coronavirus relief package passed by Congress last spring.
The CARES Act Secured Loan Program made available $25 billion in low-interest term loans to U.S. passenger carriers, intended to shore up liquidity while demand remains depressed by the COVID-19 pandemic. The loans were separate from the $25 billion Payroll Support Program (PSP), which was conceived as a pass-through subsidy to keep airline workers employed through the spring and summer.
The seven airlines that opted to participate in the secured loan program are: Alaska Airlines, American Airlines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, SkyWest Airlines and United Airlines. Notable holdouts include Allegiant Air, Delta Air Lines and Southwest Airlines.
“We are pleased to conclude loans that will support this critical industry while ensuring appropriate taxpayer compensation,” Treasury Secretary Steven Mnuchin said in a statement Sept. 30.
Mnuchin said the final loan amounts will be greater than initial amounts agreed to between airlines and the Treasury, noting that several large carriers have instead opted to pursue financing in the private markets. The reallocated loans will be capped at $7.5 billion, or 30% of the total $25 billion made available by the program.
American Airlines, for example, originally qualified for a $4.75 billion loan—backed by its AAdvantage loyalty program—although it disclosed in a recent securities filing that amount has since increased to nearly $5.5 billion, and could eventually get as high as the $7.5 billion cap.
Delta, by contrast, opted against pursuing a $4.5 billion loan that it initially qualified for after securing $9 billion in private financing backed by its SkyMiles frequent-flier program earlier in September. “We found a more efficient use of that collateral in the private markets,” Delta CFO Paul Jacobson explained on Sept. 9.
The Sept. 30 deadline for the CARES Act secured loan negotiations has been overshadowed by the looming expiration of the PSP, which officially lapses at midnight on Oct. 1. Airlines have warned that more than 30,000 collective employees will be let go unless Congress can come up with an eleventh-hour compromise to extend the program by another six-month term, although such an outcome appears increasingly unlikely with the funding deadline just hours away.
“The payroll support and loan programs created by the CARES Act have saved a large number of aviation industry jobs, and kept workers employed and connected to their healthcare, during an unprecedented time,” Mnuchin said in a statement. “We call on Congress to extend the Payroll Support Program so we can continue to support aviation industry workers as our economy reopens and we continue on the path to recovery.”