The Coronavirus Aid, Relief and Economic Security Act, or H.R. 748, which the Senate approved late Wednesday and which the House is expected to approve Friday, is intended to support business operations and fund employees’ paychecks as stay-at-home orders and social distancing mandates have halted most travel, shut borders and strangled the economy.
Here, Law360 examines what segments of the transportation industry stand to receive from the CARES Act as they grapple with the novel coronavirus pandemic gripping the country.
An airline industry bailout had been a major sticking point for lawmakers who clashed over worker protection provisions as CEOs warned bankruptcies would devastate the economy. Notably, the bill carves out $29 billion in grants for airlines — $25 billion for passenger airlines and $4 billion for air cargo carriers — to specifically be used for paying employees through September.
The Senate’s original bill contemplated only loan guarantees for airlines, but urgent appeals from the industry for direct cash grants resulted in “a positive event at a very hard time for the airlines and for all their hard-working employees,” according to Jennifer Trock, chair of Baker McKenzie's international commercial practice group and chair of its global aviation group.
“While the Senate generally provided the industry with the financial assistance it was seeking, this bill certainly does not represent a blank check,” Trock said. “There are a number of conditions and oversight mechanisms that provide for transparency and accountability in how the industry will be using these grants and loans.”
The bill includes $25 billion in loans and loan guarantees for passenger airlines, repair stations and ticket agents, as well as $3 billion in aid for airline and airport contractors such as caterers and ground handlers.
But they come with restrictions on executive pay hikes, stock buybacks and dividends, and allow the federal government to receive warrants, stock options and other financial instruments as a condition of the financial assistance. Additionally, air carriers won’t be allowed to furlough or reduce pay rates for employees before Sept. 30.
If the airlines can stretch the cash grants, it remains to be seen how attractive the loans and loan guarantees will be to them given all the strings attached, according to Gregory Walden, a McGuireWoods LLP partner and former chief counsel of the Federal Aviation Administration.
“That’s good that the money going into the grants [for payrolls] isn’t subject to restrictions because the Treasury may not give a loan or loan guarantee without a warrant or equity interest,” Walden told Law360.
The bill also sets aside $10 billion for airports through the FAA’s Airport Improvement Program and provides $17 billion in loans to “businesses critical to maintaining national security,” which some have speculated could benefit American aerospace titan Boeing.
“The CARES Act is welcome relief for an industry that has faced unprecedented loss in demand as a result of the coronavirus pandemic, and the influx of cash and waiver of certain taxes will certainly go a long way in helping airlines to stay afloat before demand ramps up again,” said Amna Arshad, special counsel with Freshfields Bruckhaus Deringer LLP.
Public transit agencies that have been reeling from plummeting ridership and operating on reduced service primarily to transport front-line and essential workers during the crisis stand to receive $25 billion under the CARES Act.
New York’s Metropolitan Transportation Authority could get about $3.8 billion, shy of the $4 billion that MTA chairman and chief executive Patrick Foye has said the nation’s largest public transportation network needs to fill precipitous declines in ridership and fare revenue.
“Public transit is a critical lifeline for millions of Americans, and this legislation will provide much-needed support to the transit systems working tirelessly to provide essential public transit services for health care workers, first responders, and grocery and pharmacy workers, as well as medical transportation for kidney dialysis, cancer treatments and other critical care,” American Public Transportation Association President and CEO Paul P. Skoutelas said in a statement Thursday.
Amtrak, the nation’s intercity passenger railroad, would get approximately $1 billion. That includes $492 million in grants for the Northeast Corridor — Amtrak's busiest line that runs from Boston through New York City, Philadelphia and Baltimore to Washington, D.C. — and $526 million in grants for the broader national network "to prevent, prepare for and respond to coronavirus."
The commercial trucking industry, a crucial link in the global supply chain, has been straining to meet skyrocketing demand for food, consumer goods, medical supplies and materials.
At its core, trucking is an industry of small business, according to the American Trucking Associations, so the $377 billion in aid the CARES Act would provide to small businesses to weather the economic stresses of the pandemic is monumental.
“Americans across the country have renewed focus right now on what it is [that] truckers do every single day: provide the essential goods — food, water, fuel, medicine — that we all rely on in our daily lives,” ATA president and CEO Chris Spear said in a statement Thursday. “Truckers don’t have the option to telework, and they’re not asking for a handout. But they are asking for liquidity and the necessary bridge to keep their trucks moving as America recovers from this crisis.”
The bill’s Paycheck Protection Program would provide eight weeks of cash-flow assistance through federally guaranteed loans to small employers who maintain their payroll during the emergency. The bill would also expand eligibility for entities suffering economic harm due to COVID-19 to access the U.S. Small Business Administration’s Economic Injury Disaster Loans, while also giving the SBA more flexibility to process and disperse small-dollar loans.
And so-called gig economy workers, including drivers for Uber and Lyft or couriers for DoorDash and Postmates, may be able to get their hands on unemployment benefits that are typically available only to employees, not independent contractors.
Under the bill’s Pandemic Unemployment Assistance, contractors, freelancers and other self-employed individuals could be eligible to apply for unemployment insurance benefits. Additionally, unemployed workers can also get an extra $600 per week for up to four months in “federal pandemic unemployment compensation.”
Richard Reibstein, a partner at Locke Lord LLP and co-head of the firm’s independent contractor misclassification and compliance practice, described it as “momentous” for independent contractors.
“Congress is providing unprecedented relief to a class of workers who have chosen to be their own bosses and, as a result, have excluded themselves from the benefits associated with employment,” he explained. “By so doing, Congress has not only eased the financial stress placed upon a key component of the U.S. economy, including millions of workers not engaged in the gig economy, but recognized the importance of preserving the landscape on which independent contractor relationships are based.”
It’s worth noting that the issue of independent contractor vs. employee classifications, specifically in the gig economy, has been the subject of intense litigation and was politically charged well before the pandemic, Reibstein said.
“Congress avoided the political issues on this subject and maintained an even-handed approach that favored neither those who are defenders nor those who are critics of the prevalence of independent contractors in the U.S.,” he said.
Overall, the CARES Act, which is Congress’ third legislative package addressing the COVID-19 crisis, is aimed at compensating for business losses during widespread shutdowns and stay-at-home directives. And the transportation sector will keep its eyes on what will be included in a fourth bill that Congress is expected to draft to stimulate the economy, experts say.
“I don’t know that [any industry] has a more cogent case for being attended to in a phase-four stimulus than travel, that’s something to get the country moving again,” McGuireWoods’ Walden told Law360.
Fred Dombo, chair of Nossaman LLP’s government relations and regulation group, agreed.
“While there was about $31.5 billion in this third COVID-19 package for transit, airport improvements and Amtrak, the real infrastructure investment is likely to come in a fourth package,” Dombo said, adding that Senate Environment and Public Works Committee Chair John Barrasso, R-Wyo., wants his committee’s highway bill to be the foundation for phase four, while the House is eyeing an even larger investment across infrastructure.
--Editing by Philip Shea and Emily Kokoll.
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