U.S. airlines are strenuously pushing the Trump administration and Congress for cash grants, arguing behind the scenes that a Senate proposal to hand them billions of dollars in taxpayer-backed loans isn’t sufficient to guarantee their long-term health, two people familiar with the matter said.
Over the past week, industry lobby group Airlines for America had been urging the White House to agree to its request for $58 billion. Now, the airlines and administration officials are pressing Congress for quick action on the industry bailout, aimed to blunt the fallout from the Covid-19 pandemic.
However, the talks are now focused on how much of the $58 billion should be designated as loans—with airlines arguing they need cash grants to cover labor costs, said the two people, who requested anonymity because the negotiations are private. Grants would help to preserve the industry’s long-term financial viability, the carriers contend. Right now, the package is entirely made up of loans, which the airlines would have to repay.
Airlines for America, the industry’s lobbying group, said late Thursday in a statement that “loans alone are not sufficient and should be coupled with a worker payroll assistance program and targeted tax relief.” Such an approach would “allow airlines to keep operating through this crisis and protect” the industry’s 750,000 direct employees by keeping them on the job.
The carriers are also arguing that cash grants will reduce the financial impact of an expected flood of unemployment filings across the country, leaving it better positioned to resume regular operations whenever the coronavirus recedes, the people said. Airlines also expect the global economic shock could lead to a deep recession, which would further erode ticket sales this year and next.
A request for comment from a Treasury Department spokesperson after regular business hours wasn’t immediately returned.
Read More: U.S. Airlines Rush to Cut Costs While Congress Studies Bailout
Any federal aid for the airlines, be it loans or direct grants, is expected to come with restrictions on how the money can be used, especially as a taxpayer rescue for airlines (and other large private enterprises) has drawn opposition from some in Congress.
On Friday, Republican Senator Rick Scott of Florida said “we shouldn’t bebailing out large corporations that have enjoyed years of growth and prosperity.” Meanwhile, about 100 Democrats in the House of Representatives signed aletter to their leadership calling for restrictions in any bailouts. They want federal aid for large companies to be restricted to its front-line workers, caps on senior executives’ pay and equity stakes held on behalf of taxpayers.
The carriers are warning that lost ticket sales for April and May—the two months for which travel is expected to decline most drastically—will total more than $26 billion at the four largest U.S. airlines. Together, they spend about $3.7 billion per month on employee compensation, supported by about $13.2 billion in monthly revenues in normal times, according to their 2019 financial statements.
The airlines want the grants to help cover payrolls, which would in any case largely be paid from government and private loans, the people said. Such an arrangement would let the largest carriers, including American Airlines Group Inc. andUnited Airlines Holdings Inc., emerge from an economic downturn in a healthier financial state and lessen their debt loads, they said.
Airlines are already borrowing billions of dollars in the private market: Delta arranged a $2.6 billion credit line and last week United secured a $2 billion loan from four banks. They are among at least six U.S. carriers to seek new financing since the coronavirus vaporized airline revenues. Many airlines have recently suspended their share-repurchase programs and dividend payments, including Delta on Friday.
Even when people begin to fly again, the airlines expect to face a global recession.
“Given the underlying damage the virus has created to the overall economy, that demand recovery will take an extended period once the virus is contained,” Ed Bastian, chief executive of Delta Air Lines Inc., wrote Friday in a memo to employees.
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