By Linda Chiem

Law360 (April 14, 2020, 8:09 PM EDT) -- Ten major airlines, including American, Delta and United, on Tuesday reached preliminary deals with the U.S. Treasury for billions of dollars in grants and loans in the coronavirus economic relief package to pay their employees and prevent layoffs or furloughs.

Treasury Secretary Steven Mnuchin announced Tuesday that Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines and Southwest Airlines have applied or intend to apply for payroll support provided by the Coronavirus Aid, Relief and Economic Security, or CARES, Act.

"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," Mnuchin said in a statement.

Mnuchin added that conversations are continuing with other airlines regarding their potential participation in the program, and the Treasury is working to review and approve applications for smaller passenger air carriers as quickly as possible. The Treasury will provide further guidance for cargo carriers and contractors very soon, Mnuchin said.

Tuesday's announcement of the agreements in principle comes after intense wrangling over what concessions the airlines would make in order to receive taxpayer-funded aid from the CARES Act that became law on March 27. The law provided $25 billion in direct grants to passenger airlines to pay employees through September, with another $4 billion for cargo airlines and $3 billion for airline contractors. The payroll support comes with a number of conditions, including barring airlines from implementing involuntary layoffs, furloughs or pay reductions for employees before Sept. 30.

The CARES Act also provided a separate pot of funds: $25 billion in loans and loan guarantees for passenger airlines, repair stations and ticket agents, which come with restrictions on executive pay hikes, stock buybacks and dividends. Airlines tapping into these loans also have to agree to largely maintain their employment levels.

Notably, the law gave the Treasury secretary wide discretion to determine what's "appropriate" compensation for taxpayers in exchange for airlines receiving the payroll grants, and how much equity the government wants to take in exchange for the loans. That meant the government could demand stock warrants, preferred stock, debt securities, notes or other financial instruments as a condition of any financial assistance offered under the CARES Act — which became a major sticking point during negotiations.

Already wary of potentially having to give up some equity in exchange for CARES Act funds, the airlines were told in recent days by the Treasury that they'd have to repay approximately 30% of any CARES Act funds they received, despite their initial understanding that payroll support grants would not have to be repaid. The specific details of the airlines' agreements with the Treasury weren't immediately available Tuesday. However, some airlines disclosed the broad terms of their respective deals.

The nation's largest carrier, American Airlines, confirmed Tuesday that it was approved for a $4.1 billion direct grant and a low-interest rate loan of $1.7 billion to be used for payroll support. Additionally, American said it will separately apply for an approximately $4.75 billion loan from the Treasury. The airline said it's agreed to limitations on stock buybacks, dividends and executive compensation.

American Airlines Chairman and CEO Doug Parker said in a statement Tuesday that the airline was "elated that this program will enable us to continue to employ and pay our team while they fly through this period of depressed consumer demand."

"The support our government has entrusted to us carries immense responsibility and an obligation that American Airlines is privileged to undertake," Parker said. 

Delta CEO Ed Bastian said in a memo to employees on Tuesday that the airline will receive $5.4 billion in emergency payroll support that will also include an unsecured 10-year low-interest loan of $1.6 billion. Delta will also provide the federal government with warrants to acquire about 1% of Delta stock at $24.39 per share over five years, according to the memo.

"The program recognizes the decisive role Delta and our industry — which supports more than 10 million U.S. jobs and is an essential engine for the economy — will play in leading the recovery once the pandemic is contained," Bastian said. "This is an essential step, but just one of many that will get us through the next several months."

Southwest Airlines said Tuesday that it has an agreement in principle with the Treasury for more than $3.2 billion in CARES Act aid, including $2.3 billion in direct payroll support and a nearly $1 billion unsecured term loan.

The loan is expected to have a 10-year term with low interest rates and may be repaid at any time prior to maturity at par, and will include approximately 2.6 million warrants issued to the Treasury, Southwest said. 

"As we are now in the implementation phase of the CARES Act, we applaud the quick action by the U.S. Department of Treasury to infuse liquidity into the economy and try to keep businesses open and people on the job — and that certainly includes the airlines and our employees," Southwest Chairman and CEO Gary Kelly said in a statement.

JetBlue CEO Robin Hayes said in a statement Tuesday that the airline will receive approximately $685 million in direct payroll support that won't have to be paid back and a $251 million low-interest loan that JetBlue will have to start paying back in October. The federal government will also receive a limited number of warrants giving it a right to buy JetBlue shares at a predetermined price that Hayes did not disclose.

"While I am happy we are receiving this much-needed cash for payroll now, it adds to the significant debt we are taking on as we burn through our cash reserves," Hayes said. "Thankfully, we entered this crisis with one of the stronger balance sheets in the industry but we will come out of this with significant debt to pay down."

Airline industry stakeholders and various lawmakers also expressed relief on Tuesday that the deals will get payroll flowing to hard-hit airline workers.

Sara Nelson, president of the Association of Flight Attendants-CWA International, said in a statement Tuesday that "this is an unprecedented accomplishment — a truly workers-first stimulus that keeps people connected to their jobs and provides stability and hope to millions of aviation workers and sets a template we must now work to extend to every worker."

House Transportation and Infrastructure Committee Chairman Peter DeFazio, D-Ore., said in a statement Tuesday that "even though this process was neither easy nor perfect, it is critically important that in the end there are agreements in place that put workers and families first by keeping hundreds of thousands of airline employees — from flight crews to baggage handlers — on the payroll during this extremely tumultuous period for the U.S. economy."

In recent weeks, the U.S. Department of Transportation has further clarified that airlines applying for CARES Act funds won't have free rein to eliminate unprofitable routes or withhold customer refunds for canceled flights even as government travel advisories and stay-at-home mandates aimed at combating the COVID-19 outbreak obliterate their passenger volumes and revenues.

The DOT issued a final order on April 7 revising minimum service obligations for air carriers that accept grants, loans or other relief funds from the CARES Act, which was the third COVID-19 economic relief package. Days earlier, the DOT issued an enforcement notice warning airlines that they're still required to refund passengers for flights that are canceled or significantly delayed, even as they contend with the unprecedented global health crisis.

--Editing by Michael Watanabe.

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