US Treasury agrees on government loan term with airlines

US Treasury agrees on government loan term with airlines
US Treasury agrees on government loan term with airlines :File Photo

US Treasury signed letters of intent with American, Frontier, Hawaiian, SkyWest, and Spirit under a $25bn loan programme.

The United States Treasury says it has agreed on terms for government loans with five US carriers, including American Airlines Group Inc.

The Treasury on Thursday said it had signed letters of intent with American, Frontier Airlines, Hawaiian Airlines, SkyWest Airlines, and Spirit Airlines under a $25bn emergency loan programme created by Congress in March.

American said on Thursday it expects to close on a $4.75bn Treasury loan in the third quarter on top of $5.8bn in payroll assistance it was previously awarded.

American Chief Executive Officer Doug Parker and President Robert Isom warned employees on Thursday it may face significant overstaffing as it tries to win voluntary departures.

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“We currently anticipate having 20 to 30 percent or more than 20,000 more team members on payroll than we need to operate our schedule this fall,” they wrote in an employee memo. “To be clear, this doesn’t mean 20,000 of our team members will be furloughed in October, it simply means we still have work to do to right-size our team for the airline we will operate.”

The Treasury separately awarded airlines $25bn in payroll assistance bailouts with most of the aid in the form of grants that do not need to be repaid.

Treasury Secretary Steven Mnuchin said in a statement: “Conversations with other airlines continue, and we look forward to finalizing agreements as soon as possible.” Airlines have until September 30 to decide whether to take the loan.

Like the payroll assistance funds, the loans come with a ban on stock buybacks and paying dividends and set limits on executive compensation.

Hawaiian Airlines, which was awarded $292m in payroll assistance, had sought an additional $364m Treasury loan.

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Spirit was awarded $335m in payroll assistance and said it was eligible for a $741m Treasury loan. SkyWest received $438m in payroll assistance.

Airlines have warned a recent spike in US coronavirus cases could dampen travel demand that is still off approximately 75 percent from last year but has rebounded significantly over April lows.

Airlines can furlough or eliminate jobs starting October 1.
Last week, six US aviation unions told legislators another $32bn in payroll aid is needed to keep hundreds of thousands of workers employed through March 31, 2021.