Some Airlines Aren’t Happy With the Terms of Mnuchin’s Aid

Treasury Secretary Steven Mnuchin’s insistence that America’s major airlines partially repay taxpayer funds aimed at shoring up the industry has set up a clash between the Trump administration and the carriers.

At least some of the large carriers are unhappy with the terms—specifically, that large airlines repay 30% of any grant within five years—and are seeking to negotiate with the Treasury Department, said a person familiar with the discussions.

The leader of one trade group said the offer violated “both the letter and the spirit of the law” written to provide help for an industry reeling from the coronavirus pandemic, which has seen air travel grind to a halt. Flight attendant groups were also livid. The large carriers are set to receive billions of dollars each in payroll assistance.

But Treasury officials contend this should come as no surprise, and that airlines were warned what to expect when the $2.2 trillion pandemic rescue package was developed with Congress.

“The bipartisan law passed by Republicans and Democrats and signed by President Trump specifically states that the Secretary may receive warrants, options, debt securities, or other financial instruments to provide compensation for American taxpayers,” Brent McIntosh, undersecretary of Treasury’s international affairs unit, said in an interview. He’s playing a leading role in distributing aid to airlines.

Caught Off Guard

Mnuchin’s team is requiring large carriers to repay 30% of the grants through low-interest loans due within five years, Bloomberg News reported Friday. The agency said it has received 230 applications for aid from passenger carriers of all size. It’s working with 12 that would get more—in some cases much more—than $100 million each, and is discussing what sort of terms it will require in return.

The head of the National Air Carrier Association, which represents mid-sized airline and air cargo companies, some of which fall above the $100 million threshold, said its members were caught off guard by the repayment request.

“In our conversations with Hill staff and members of Congress, it was very clear that this portion of the aid was to be grants in aid to the air carriers to support payroll,” said George Novak, president of NACA.

Airlines receiving $100 million or less in payroll assistance from the government won’t need to provide a financial stake or pay compensation, Treasury has said.

Focus on Workers

Airlines for America, which represents the larger airlines, said in a statement Friday that the offers weren’t consistent with what they expected.

“We believe the law indicated that the Direct Payroll Assistance funding was to be only in grants—which is considerably more effective for our employees—and not a combination of grants and loans,” the group said in a statement.

The grants “are critical to getting our employees paid and preventing furloughs, especially at a time when our country is experiencing historically high unemployment claims,” A4A said.

Treasury officials are working through Easter weekend to review loan applications and start unlocking federal aid to airlines, which face a ridership drop-off of 95% across the industry.

“Our goal is to approve applications as quickly as possible, consistent with the law, after reviewing those applications to protect taxpayers’ interests,” McIntosh said.

Mnuchin has repeatedly rejected the idea that airlines are getting a “bailout.” His assurances reflect public outcry that the U.S. a decade ago bailed out Wall Street banks, whose behavior in part led to the global financial crisis.

Democrats in Congress have insisted their intent in the law was to offer payroll grants intended to keep workers employed.

The terms Treasury is floating aren’t what bipartisan Congressional supporters or President Donald Trump intended, Sara Nelson, president of the Association of Flight Attendants-CWA, said Saturday.

The provisions may lead to airline bankruptcies or worker concessions or furloughs after Sept. 30, said Nelson. She estimated it would require airlines to pay back a combined $7 billion to the Treasury—or more pointedly, “steal $7 billion from us.”

Julie Hedrick, national president of the Association for Professional Flight Attendants, which represents workers at American Airlines, said Mnuchin was disregarding “the specific intent” of the rescue bill.

“Congress understood that flight attendants have been at the forefront of this pandemic since day one, and that the grants were designed to keep our members ready to return to the front lines to jump-start our economy,” Hedrick said. “Secretary Mnuchin owes the more than 2 million workers supported by the aviation industry an explanation.”

The dispute revolves around the meaning of a provision in the law that says Mnuchin “may” obtain a variety of financial instruments in exchange for the grants. Mnuchin can ensure the airlines “provide appropriate compensation” for the grants, the law says.

Southwest Airlines Co. said it was in discussions with the Treasury over the grant proposal and “we are eager to complete this process.” It declined to discuss its offer from the agency or the payback provision.

American Airlines Group Inc., Delta Air Lines Inc., United Airlines Holdings Inc. and JetBlue Airways Corp. also declined to discuss the terms. Alaska Air Group Inc. didn’t immediately respond to a request for comment.

The decision by the Treasury to exempt smaller carriers marks a victory for that group, most of which aren’t publicly traded and have limited assets to provide as collateral.

Bleeding Cash

“The staff at Treasury has been truly exceptional in terms of their accessibility and receptiveness to our questions and concerns,” said Jonathon Freye, a spokesman for the National Air Transportation Association, which represents some charter companies that have applied for aid.

The Trump administration has quickened the pace of distributing the aid amid complaints that the process was moving too slowly as airlines—which are flying only 5% of their usual load—bled cash.

The more than $2 trillion federal stimulus package includes payroll grants of $25 billion for passenger airlines, $4 billion for cargo haulers and $3 billion for airline contractors, plus another $29 billion in loans for passenger and cargo carriers and $10 billion in grants to airports. Treasury has two oversight panels that will be monitoring its efforts on the pandemic recovery package.

Under the law, airlines that get such grants must promise not to lay off workers through Sept. 30.