CARES Act Provides Support for Airline Industry

Date   Mar 30, 2020

As previously announced, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is a $2 trillion relief package aimed at helping mitigate some of the economic impact of the COVID-19 pandemic. As part of the Act, Congress provided relief for the aviation industry.

Under Title IV, Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy, Congress approved $500 billion in federal assistance to severely distressed sectors of the economy as part of the larger $2 trillion stimulus package. The approved programs include $61 billion to the aviation sector. The Act provides support to the airline industry through loans, loan guarantees, and grants. The Act also provides relief for certain federal excise taxes, such taxes on airline passenger tickets, cargo, and aviation fuel. A Congressional Oversight Commission will be established to implement Title IV.

Under Title IV, the Secretary of Transportation is authorized to require, to the extent practicable, that air carriers receiving financial support continue services to any point served by that carrier before March 1, 2020. The Act also requires the Secretary of Transportation to take into consideration the air transportation needs of small and remote communities and the need for health care and pharmaceutical supply chains.

Loans and Loan Guarantees

  • Direct lending:
    • $25 billion for passenger air carriers, eligible businesses that are certified under part 145 of title 15, Code of Federal Regulations and approved to perform inspection, repair, replace, or overhaul services, and ticket agents;
    • $4 billion for cargo air carriers; and
    • $17 billion for businesses important to maintaining national security.
  • All direct lending must meet the following criteria:
    • Alternative financing is not reasonably available to the business;
    • The loan is sufficiently secured or made at an interest rate that reflects the risk of the loan;
    • The duration of the loan shall be as short as possible and shall not exceed five years;
    • Borrowers and their affiliates cannot engage in stock buybacks, unless contractually obligated, or pay dividends until the loan is no longer outstanding or one year after the date of the loan;
    • Borrowers must, until September 30, 2020, maintain their employment levels as of March 24, 2020, to the extent practicable, and retain no less than 90 percent of their employees as of that date;
    • A borrower must certify that it is a U.S.-domiciled business and its employees are predominantly located in the U.S.;
    • The loan cannot be forgiven; and
    • In the case of borrowers critical to national security, their operations are jeopardized by losses related to the coronavirus pandemic.

The Act also provides that the Secretary of Treasury will “endeavor to seek the implementation” of a program to provide direct loans to eligible mid-size and nonprofit businesses with between 500 and 10,000 employees. Unlike the direct loans, mid-size business loans under this program would come from private lenders but the interest rate for these loans cannot exceed two percent. Loan Recipients under this program are required to comply with restrictions and requirements such as:

  • Retaining at least 90 percent of their workforce, at full compensation and benefits, until September 30, 2020;
  • Restoring not less than 90 percent of the workforce that existed as of February 1, 2020, and restoring all compensation and benefits no later than four months following the termination of the COVID-19 public emergency;
  • Agreeing to not buy back stock or pay dividends for a period of time that extends one year beyond the term of the loan;
  • Not outsourcing or offshoring jobs for the term of the loan or guarantee and for two years thereafter;
  • Not abrogating existing collective bargaining agreements for the term of the loan and for two years thereafter; and
  • Remaining neutral in any union organizing effort for the term of the loan.

Payroll Protection Grants

The Pandemic Relief for Aviation Workers provision provides financial assistance for the exclusive use of employee wages, salaries, and benefits in the amounts of up to $25 billion for passenger air carriers, up to $4 billion for cargo air carriers, and up to $3 billion for airline contractors. Grant amounts will be capped at the amounts of salaries and benefits reported by eligible employers during the period from April 1, 2019 through September 30, 2019. Initial payments will be made to air carriers and contractors that request financial assistance within 10 days.

To be eligible for financial assistance, recipients must agree that they:

  • Will not conduct furloughs or reduce pay rates before September 30, 2020;
  • Will not buy back stock or pay dividends before September 30, 2020.

The Act also restricts executive compensation (salary, bonuses, awards of stock, and other financial benefits) for businesses that receive aid pursuant to Title IV. The executive compensation restrictions begin on March 24, 2020 and end on March 24, 2022.

With demand for air travel at record lows, the industry looks to rebound with this assistance.

If you have any questions regarding this Alert, please feel free to contact the Alert’s author, Jacki Thompson,, who is a partner in FordHarrison’s Washington, D.C. office, or the FordHarrison Airline attorney with whom you regularly work.

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