Major Airlines Reach Deal With Treasury Over Participation In Bailout Program

Major airlines have agreed to participate in the Payroll Support Program, an important component of the $2.2 trillion economic relief package (CARES Act), passed by Congress last month.

What Happened

The United States Treasury Secretary, Steven Mnuchin, announced Tuesday that major airlines such as Alaska Air Group, Inc. ALK, United Airlines Holdings Inc. UAL, American Airlines Group Inc. AAL,  Delta Air Lines, Inc. DAL, Frontier Airlines, Hawaiian Holdings Inc HA, JetBlue Airways Corporation JBLU, and Southwest Airlines Co LUV have all agreed to participate in the Payroll Support Program.

The secretary revealed that talks are on with other airlines regarding their participation. Mnuchin stated, “We welcome the news that a number of major airlines intend to participate in the Payroll Support Program.This is an important CARES Act program that will support American workers and help preserve the strategic importance of the airline industry while allowing for appropriate compensation to the taxpayers.”

Why It Matters

Airline shares rose in the after-hours trading. United Airlines’ stock rose 9.55%, American Airlines shares were higher by 10.67%, while Spirit Airlines Incorporated SAVE, Southwest Airlines, and JetBlue stocks rose 8.07%, 7.42%, and 16.02% respectively.

On Friday, Mnuchin disclosed the Treasury had received more than 230 applications for support from a “wide range of passenger air carriers.”

Alaska Airlines and Horizon Air announced they would receive $992 million under the CARES Act, to be used exclusively for the cost of employee payroll and benefits. The program is expected to cover budgeted costs through the end of September.

American Airlines expected $12 billion of the $50 billion of the assistance available to airlines under the federal economic relief package.  Airlines have been hit hard amid the pandemic, with American cutting 60% of its flight schedule for April and 80% for May citing “record low demand.”

According to Reuters, based on wages and benefits paid in Q2 and Q3 2019, American and United can claim $6 billion in support, Delta $5.6 billion, Southwest $4 billion, and JetBlue and Alaska are both eligible for nearly $1.2 billion.