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United, American Airlines Among Carriers Taking Covid Loans

Saleha Mohsin
·2 mins read

(Bloomberg) -- American Airlines Group Inc. and United Airlines Holdings Inc. are among seven carriers taking federal loans that are capped at $7.5 billion apiece, the Treasury Department announced late Tuesday.

Accepting federal loans is seen as a last resort if no other funding comes through because of the government’s restrictions. Companies accepting federal loans are required to put a cap on executive compensation offer equity or other financial stakes to the government in exchange for the aid.

Nearly all major airlines signed letters of intent in July to tap the $25 billion loan fund carved out in the Cares Act to help an industry reeling from the pandemic.

The Treasury Department did not layout how much each carrier is borrowing. American announced earlier that it will take a $5.48 billion loan backed by its loyalty program. That’s increased from an original proposal to take $4.75 billion, until other airlines found financing elsewhere.

Alaska Airlines, Frontier Airlines, JetBlue Airways Corp., Hawaiian Airlines and SkyWest Airlines also accepted the loans.

Southwest Airlines Co., Delta Air Lines Inc. and others opted not to because they found financing in private markets, leaving more federal bailout money for a smaller number of carriers to tap. The Treasury Department limited the funds to no more than 30% of the total program for an individual carrier.

The airline industry is not expecting a rebound anytime soon. American sees third quarter revenue down 75% from a year earlier, and a 65% drop in the fourth quarter.

Airlines seeking the loans have until the end of Wednesday to finalize the terms with the Treasury Department.

The Covid-19 pandemic has ravaged the airline industry, with Treasury Secretary Steven Mnuchin repeatedly saying that it is among the few parts of the economy that urgently needs additional federal support.

Mnuchin’s team earlier this year doled out funds from a separate part of the Cares Act called the Payroll Support Program. In exchange for a share of the $25 billion funds, which was given as a combination of loan and grant money, companies promised not to furlough or lay off employees until Sept. 30.

That deadline is approaching with Congress still at an impasse on more stimulus for the economy.

As many as 50,000 jobs are at stake if the government cannot extent that program, according to White House chief of staff Mark Meadows, who met with airline executives earlier this month.

(Updates with additional details from fifth paragraph)

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