Airlines and Treasury reach an agreement over multibillion-dollar relief

Major U.S. airlines, roiled by the coronavirus pandemic, will be participating in the federal government’s Payroll Support Program, Treasury Secretary Steven Mnuchin announced Tuesday.

Ten of the country’s largest airlines, including American, Delta and United, are to receive a slice of the $25 billion Payroll Support Program.

The airlines, which have been hit hard by border closures around the globe, had been working with the Treasury Department to secure relief to keep workers on the payroll. With the majority of their flights axed because of the lack of demand, several airlines have drastically cut staff hours, some have continued service with a single passenger and others have suspended routes.

Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines and Southwest Airlines “have all told us that they plan to participate in the Payroll Support Program,” according to a statement from Mnuchin.

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American Airlines said it had received a $5.8 billion package. The relief includes $4.1 billion in direct support, along with a $1.7 billion low-interest loan. American Airlines also expects to apply for a loan from the Treasury for around $4.75 billion, the Texas-based company said in a statement.

The airline also agreed to limits on stock buybacks, dividends and executive compensation.

Southwest Airlines said it would receive more than $3.2 billion, consisting of more than $2.3 billion in direct payroll support and a low-interest loan of almost $1 billion.

“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,” Southwest Chairman and CEO Gary Kelly said in a statement.

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Earlier in the day, Transportation Secretary Elaine Chao said the Transportation Department would deliver $1.08 billion to California’s airports to fund their continued operations during the crisis.

Mnuchin said in a statement, “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.”

Airlines have had some fiscal breathing room in past weeks from the slump in fuel prices and the grounding of the Boeing 737 Max, which has prevented many from taking delivery of (and paying for) the new planes they had on order, but the industry’s fixed overhead costs are so high that even those circumstances could not offer a reprieve for very long.

“The cash burn rate at these fuel prices and with the amount of flying they’re actually doing is probably on the order of $8 billion a month for passenger flights,” airline industry consultant Robert W. Mann told NBC News.

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Because tickets are often booked months in advance, those service obligations weigh on airline balance sheets, Mann said. “It’s all well and good as long as people continue to buy tickets. If the advance purchase revenue stream is interrupted, if that stops all of a sudden, all that negative working capital rears its ugly head and you have a cash crisis.”

Jay Blackman and Luke Oldham contributed.

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