US airlines reach agreement on terms of $25bn Covid-19 bailout

US airlines on Tuesday reached an agreement in principle on the terms of a $25bn bailout package to help the battered industry survive the impact of the coronavirus pandemic.

Treasury Secretary Steve Mnuchin said 10 carriers planned to participate in the payroll support program as talks continued with other airlines on tapping into the funding.

The money is being made available under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the cash must be used to pay employees. Airlines have come under intense criticism for demanding what is effectively "corporate welfare" after spending billions on share buybacks during the last decade.

Companies were also prohibited from major staffing or pay cuts until September 30, when the government hoped demand for air travel will have recovered. They were also banned from undertaking buybacks, dividend payouts and executive bonuses.

“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.

The Treasury said Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines, and Southwest Airlines indicated they planned to take advantage of the scheme.

It added that it was also working to review and approve applications for smaller passenger air carriers “as quickly as possible and will provide further guidance for cargo carriers and contractors very soon”.

“We look forward to working with the airlines to finalise the necessary agreements and disburse funds as quickly as possible.”

American Airlines said it would receive $5.8bn as part of the deal, with $4.1bn in grants and the rest as a low-interest loan. The company said it expected to separately apply for a $4.75bn Treasury loan.

Southwest Airlines said it expected to receive more than $3.2bn consisting of more than $2.3bn in direct payroll support and a nearly $1bn in an unsecured 10 year loan at low interest rates.

The loan was expected to include around 2.6 million warrants to buy company stock issued to the Treasury, Southwest said in a statement.

Delta said its deal includes a $1.6bn unsecured 10-year low-interest loan and warrants allowing the government to buy about 1% of Delta stock at $24.39 per share over five years.