Airlines wait as Treasury applies strings to payroll aid

The Treasury Department has missed a deadline to start paying airlines to keep workers employed, and the two sides were still negotiating terms of the federal help Monday.

The chief holdup is Treasury’s insistence that some of the $25 billion in payroll assistance be in the form of loans, not cash.

The impasse suggests that airlines will face a harder job getting federal help than they expected. Airline stocks fell Monday.

The airlines thought they had a deal last month: Congress agreed to give passenger airlines $25 billion in cash grants to cover payroll costs for six months.

But Treasury Secretary Steven Mnuchin told CEOs of the six largest airlines on Friday that 30% of the aid instead would be low-interest loans that they would have to pay back with securities that could be converted to stock —giving the government an ownership stake in the carriers, according to people familiar with the negotiations.

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.”

Airline labor unions are also urging Treasury to start distributing the grants, which were due to be paid out beginning April 6, 10 days after President Donald Trump signed the $2.2 trillion coronavirus-relief measure. 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.”

The Treasury Department did not immediately respond to a request for comment.

In previous remarks, Mnuchin has said the 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.

Treasury is proposing not only that 30% of the payroll grants be loans, but that large airlines give the government warrants to cover a portion of the loans, according to two people familiar with the matter, who spoke on condition of anonymity to discuss private negotiations.

Warrants are securities that can be converted to stock, and Treasury's approach would create new, government-owned stock that would dilute the ownership stake of existing shareholders. Helane Becker, an analyst for financial-services firm Cowen, said the airlines wanted something that would not dilute the holdings of current investors.

Airline stocks fell Monday on indications that the carriers aren’t 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%.