Ten major U.S. airlines have agreed to accept a combination
of payroll grants and low-interest loans that are available under the Cares
Act, Treasury Secretary Steve Mnuchin confirmed on Tuesday. 

Spirit Airlines and regional carriers Republic and
ExpressJet are still negotiating terms with the Treasury Department. 

The grant terms set forth by the Treasury Department late
last week have proven controversial. While the Cares Act designated that
passenger U.S. airlines could receive up to $25 billion in payroll grants,
Treasury decided that the largest dozen U.S. carriers could only take 70% of
what they receive as grants. The other 30% is to be distributed as low-interest
loans. 

Conversely, the more than 200 smaller carriers that applied
for less than $100 million in payroll grants are to receive their funds
entirely as grants. 

Despite the tougher terms for large carriers, they appear to
have largely determined that they have little choice but to comply. Passenger
demand is down approximately 95% right now, and American, Delta and United each
are burning through upwards of $1 billion in cash per month, according to an
analysis by Cowen. 

American, Delta, United, Southwest, Alaska, JetBlue,
Frontier, Hawaiian, and Frontier have told the Treasury Department that they
intend to participate in the federal payroll program. So has SkyWest, the
nation’s largest regional carrier.

The Treasury Department hasn’t divulged the amount of the
payroll disbursements for each airline yet. However, in an announcement of its
own Tuesday afternoon, American said it will receive a grant of $4.1 billion
and a low-interest loan of $1.7 billion. The company also said it intends to
separately apply for an additional loan from the U.S. Treasury of $4.75
billion. That money would come from a separate $25 billion loan authorization
for airlines, ticket agents and aircraft maintenance businesses written into
the Cares Act.  

Southwest said that it is set to receive more than $2.3
billion in federal grants and nearly $1 billion in low-interest, 10-year term
loans. 

JetBlue said it is getting $685.1 million in grants and
$250.7 million in loans. The airline said the total grants and loans cover 76%
of their payroll for the second and third quarters.

Under stipulations laid out in the Cares Act, carriers that
accept grants must refrain from furloughing or reducing pay for non-executive
employees until October. The carriers also are blocked from share buybacks and
awarding dividends through September 2021 and they must comply with executive
compensation limits until March of 2022. 

Treasury will also have the right to buy equity at a set
price equal to approximately 10% of the value of the loan. In its announcement,
Southwest said it would issue approximately 2.6 million share warrants to the
Treasury Department. Those warrants are valued at around $90 million based on
Tuesday’s closing price.

While Spirit has yet to reach a deal with Treasury for
payroll assistance, the carrier said negotiations continue. 

“We expect to agree on terms soon,” Spirit spokesman Field
Sutton said. 

Republic spokeswoman Lauren Gaudion said the regional
carrier is still working through how the loan repayment stipulations would
impact the airline.

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