U.S. airlines must suggest possible compensation for cash grants: Treasury

WASHINGTON/CHICAGO (Reuters) – Airlines must suggest possible compensation in return for government cash assistance and agree to conditions that include not cutting pay or laying off employees through Sept. 30, the U.S. Treasury Department said in guidelines issued on Monday as it prepares to quickly hand out $25 billion.

Congress approved legislation last week authorizing the $25 billion for passenger airlines, as well as $4 billion for cargo carriers and $3 billion in cash for airport contractors like caterers and airplane cleaners.

Under the law, Treasury is supposed to make initial payments of the grants designed to cover payroll costs by next week.

The companies “must identify financial instruments” that would “provide appropriate compensation,” the guidelines said, adding that these could include warrants, options, preferred stock, debt securities or notes.

The department told applicants to apply by April 3 at 5 p.m. to receive funds as soon as possible. Applications received after April 27 may not be considered.

Other conditions for the cash assistance include limits on executive compensation through March 2022 and no stock buybacks or dividend payments through September 2021.

Airlines may also apply for a separate $29 billion in government loans. Separate Treasury guidelines released Monday for loans said carriers must provide financial instruments “for the benefit of taxpayers, in equity appreciation or a reasonable interest rate premium.” Companies critical to U.S. national security can seek loans from a separate $17 billion fund.

Those seeking loans must describe losses they have “incurred or will incur as a result of coronavirus” and detail the cause of the loss such as reduced demand, unavailability of credit or unbudgeted medical expenses.

The Treasury Department said in reviewing applications for the cash assistance it will consider the “adequacy of the proposed financial instruments for providing compensation to the Federal Government.”

It also said it “may refuse to provide payroll support payments to applicants that have taken, or are currently evaluating, any action to commence a bankruptcy.”

Major U.S. airlines on Saturday asked the Treasury department to move quickly to release funds. They have cut tens of thousands of flights as travel demand collapses amid the coronavirus pandemic and warned that without cash they would need to quickly begin massive furloughs.

The chief executives of American Airlines (AAL.O), Delta Air Lines (DAL.N), United Airlines (UAL.O), Southwest Airlines Co (LUV.N) and others wrote in a letter that “given the urgent and immediate need, it is essential that these funds be disbursed as soon as possible.”

Treasury Secretary Steven Mnuchin said Friday taxpayers will be “compensated” for providing emergency assistance to air carriers.

American Airlines said Monday it will be allocated about $12 billion of the combined cash assistance and government loans. It has said it expects that Treasury will not seek “onerous” conditions.

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Singapore Airlines latest to get massive rescue amid coronavirus crisis

SINGAPORE/SYDNEY (Reuters) – Singapore Airlines Ltd (SIAL.SI) said it had secured up to S$19 billion ($13 billion) of funding to help see it through the coronavirus crisis and expand afterward, in a sign of confidence travel demand will eventually return.

It is the single biggest financing package announced by an airline since demand plunged because of the pandemic, forcing carriers around the world to ground planes, put staff on unpaid leave and scramble to raise more cash to ensure their survival.

American Airlines Group Inc (AAL.O), a much larger carrier, on Thursday evening disclosed it would be eligible for $12 billion of U.S. government aid as part of a $58 billion loan and grant package for the airline industry.

Singapore Airlines’ majority shareholder, state-fund Temasek Holdings, said it would underwrite the sale of shares and convertible bonds for up to S$15 billion. Singapore’s biggest bank DBS Group Holdings Ltd (DBSM.SI) provided a S$4 billion loan.

“This transaction will not only tide SIA (Singapore Airlines) over a short term financial liquidity challenge, but will position it for growth beyond the pandemic,” Temasek International Chief Executive Dilhan Pillay Sandrasegara said. “The delivery of a new generation aircraft over the next few years will provide better fuel efficiencies as well as meet its capacity expansion strategy.”

For the time being, the airline, a major customer for Airbus SE (AIR.PA) and Boeing Co (BA.N), has cut capacity by 96% and grounded almost its entire fleet after the Singapore government banned foreign transit passengers, the lifeblood of the hub carrier.

Some other financially strong carriers are also banking on a return to more normal times once the pandemic has passed, such as Australia’s Qantas Airways Ltd (QAN.AX), which is continuing with costly plans to refurbish the interiors of its fleet of 12 grounded A380 superjumbos.

Others, including Air New Zealand Ltd (AIR.NZ) and Virgin Australia Holdings Ltd (VAH.AX), have warned they expect to be smaller carriers in the future.

South Korean low-cost carrier Eastar has begun returning some of its Boeing 737 planes to lessors, while Southwest Airlines Co (LUV.N) said it would consider actions to reduce the company’s size if passenger traffic remains significantly lower six months from now.

Nearly one-third of the world’s aircraft fleet is now in storage, data provider Cirium said.

BATTLE FOR SURVIVAL

Brendan Sobie, an independent aviation analyst, said normal commercial financing arrangements such as credit lines or the sale and leaseback of planes were unlikely to be enough to help most airlines survive the crisis and thrive afterward.

“When these airlines raise cash privately, they won’t get the kind of terms Singapore Airlines got from Temasek,” he told Reuters.

“They may be able to get the cash to pay bills such as monthly leasing bills at a time of virtually no revenue but later on, the cost of the capital is very high – and that in turns limit what they can do,” Sobie said. “That in turn slows the potential recovery of air transport in some markets.”

Airport traffic at 12 major hubs in Asia-Pacific region plunged by 80% on average in the second week of March compared with the same period last year, Airports Council International Asia-Pacific said on Friday as it called for government relief measures for airport operators.

U.S. airlines are preparing to tap the government for up to $25 billion in grants to cover payroll, even after the government warned it may take stakes in exchange for bailout funds, people familiar with the matter said.

After the U.S. House of Representatives approves the airline bailout and President Donald Trump signs it as early as Friday, airlines are to receive initial payments within 10 days.

European lawmakers overwhelmingly agreed on Thursday to suspend until Oct. 24 a rule requiring airlines to use at least 80% of their flight slots to keep them the following year.

China, which had been showing some early signs of a recovery in flight capacity, on Thursday ordered airlines to sharply cut the number of flights in and out of the country out of concern that infected travelers from overseas could reignite the coronavirus outbreak that paralyzed the country for two months.

The Civil Aviation Administration of China (CAAC) said it had directed Chinese airlines to maintain only one route to any country and limit the number of flights to one per week, effective March 29.

CAAC also ordered foreign airlines to reduce their international routes to China to one per week and only operate one route into the country.

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IATA pleads for more help for airlines after U.S. offers $58 billion aid

DUBAI/SINGAPORE (Reuters) – The International Air Transport Association (IATA) on Thursday urged the world’s major economies to act quickly to prevent irreversible damage to an airline industry that has seen demand crushed by the coronavirus crisis.

A number of governments have already stepped in to help airlines hammered by the virus-induced travel slump, with the United States offering $58 billion in aid, Singapore promising to keep its carrier aloft, and Australia easing competition rules.

As leaders from the Group of 20 nations met for a video summit, the world’s largest airline body asked governments in an open letter to provide or facilitate financial support for the industry.

“The spread of the COVID-19 pandemic around the globe and the resulting government-mandated border closings and travel restrictions have led to the destruction of air travel demand,” IATA Chief Executive Alexandre de Juniac wrote.

Underlining the industry’s plight, AirAsia, the region’s biggest budget carrier, became the latest airline to announce sweeping cuts to its schedule in response to the deepening crisis caused by the coronavirus outbreak. It said some of its businesses would halt flights altogether for a period.

“Many airlines have been paying out more in refunds than they have received in new booking revenues,” said de Juniac, a former head of Air France-KLM.

Related Coverage

  • IATA urges G20 to support airline industry
  • Pilots' union criticises UK's coronavirus job retention scheme

“As a result, the average two-month cash reserves held by airlines are rapidly being exhausted,” he added, calling for direct financial support, loans or tax relief.

LOADING CARGO

In a desperate bid to preserve some revenues and keep global supply chains operating, U.S. Delta Air Lines, Air New Zealand and Abu Dhabi’s Etihad Airways joined a list of carriers that have turned passenger planes into cargo-only transporters.

About half of the world’s air cargo normally travels in the bellies of passenger planes, so the cancellation of passenger flights has led to a sharp reduction in cargo capacity, with knock-on effects to food, industry and other vital trade.

In an unprecedented move, the U.S. Senate passed a $58 billion aid package late on Wednesday, half in the form of grants to cover some 750,000 airline staff wages. Those receiving funds cannot lay off employees before Sept. 30 or change collective bargaining pacts. [L1N2BI0XW]

The bill has restrictions on stock buybacks, dividends and executive pay, and allows the government to take equity, warrants or other compensation as part of the rescue package.

The U.S. House of Representatives is expected to back the move on Friday. President Donald Trump has promised to sign it.

PAYING A HEAVY PRICE

U.S. airlines, like others around the globe, have been reeling from the slide in passenger numbers.

United Airlines Holdings said capacity would drop 68% in April and Alaska Air Group cut its schedule by 70% for April and May. American Airlines suspended its dividend, drew down a $400 million credit line and secured an additional loan.

IATA, which estimates the pandemic will cost the global industry $252 billion in lost revenues this year, said earlier it had written to 18 countries in the Asia-Pacific region, including India, Japan and South Korea for emergency support for carriers.

Singapore’s finance minister Heng Swee Keat said Singapore Airlines Ltd would soon announce “corporate action” supported by state investor Temasek Holdings to tackle the crisis. Share trading in the carrier, which said this week it was seeking extra funds, was halted on Thursday.

Australia and New Zealand have joined other governments in announcing some financial relief. But this has not stopped carriers from putting staff on leave and grounding planes.

Virgin Australia plans to permanently cut more than 1,000 jobs among the 8,000 staff that have already been stood down. Australia’s Flight Centre Travel Group said it would cut 6,000 travel agent roles globally.

In a move unthinkable under normal conditions, Australia’s competition regulator said it would allow Virgin, Qantas Airways and Regional Express to coordinate flight schedules and share revenue on 10 regional routes.

“We hope that this temporary measure will also support airlines’ ability to again compete with each other on these routes once the pandemic crisis has passed,” Australian Competition and Consumer Commission Chairman Rod Sims said.

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Airlines call on government to underwrite industry charges

Airlines have called on the government to underwrite hundreds of millions of pounds in regulatory and air traffic control charges as they seek to navigate through the escalating coronavirus crisis.

Sky News has obtained a letter sent on Wednesday by Airlines UK, the industry’s main lobbying group, to Grant Shapps, the transport secretary, in which it calls again for a package of emergency support.

In the letter, Airlines UK urged the government to suspend – rather than defer – air passenger duty payments for six months following the end of the COVID-19 pandemic.

It called for the waiving of air traffic control (ATC) and Civil Aviation Authority (CAA) charges for the whole of 2020, “with payments guaranteed by [the government] so National Air Traffic Services and the CAA can continue to be paid and function as critical enablers of the wider UK aviation landscape, both through the current crisis and then into the recovery phase”.

Airlines UK, whose members include British Airways, easyJet, Ryanair and Virgin Atlantic, also repeated a call for a moratorium on all litigated claims under EC261, the European law which requires airlines to refund passengers for cancelled flights.

“Carriers should also be permitted to issue vouchers instead of refunds and, should refunds be required, carriers should be permitted to defer payment until the crisis period is over and as defined by air traffic volumes, rather than time period,” the group said.

The letter from Airlines UK comes a day after Rishi Sunak, the chancellor, told British carriers that they could expect to engage in discussions with the government about “bespoke” aid “only as a last resort”.

Mr Sunak said airlines would need to exhaust the resources of their existing shareholders and financial stakeholders before the government would consider an injection of debt or equity.

Tim Alderslade, Airlines UK chief executive, said: “A million people work in UK aviation all over the country.

“It is one of the UK’s international assets, as the third largest globally behind only China and the US.

“We welcome that the Government will enter into negotiations with individual airlines, but we also want to work with them on policy actions that could be taken now which could also have a considerable impact.”

Mr Alderslade added that airlines welcomed Mr Sunak’s confirmation that the government would be prepared to enter talks with individual airlines about “bespoke support”.

The latest industry data suggests that aggregate passenger revenues will fall globally by $252bn as a result of the virus outbreak.

Markets with severe travel restrictions now cover 98% of global passenger revenues, Airlines UK said.

Mr Alderslade also urged Mr Shapps to provide more detail about the Coronavirus Job Retention Scheme unveiled by Mr Sunak late last week.

“Please can we urge that further clarity is provided as soon as possible owing to the severe cash pressures that airlines are facing,” he wrote.

Mr Sunak’s comments held open the possibility that the government could take a stake in some British airlines, but underlined the remoteness of such a prospect.

The Treasury is keen for major airline shareholders such as easyJet’s Sir Stelios Haji-Ioannou and Virgin Atlantic’s Sir Richard Branson to inject further sums before they can turn to the government for more support.

Mr Sunak also hinted that the Treasury was close to unveiling a further credit facility for companies which do not have an investment grade credit rating.

“I have listened to feedback that suggests some companies including airlines are uncertain whether they can access this Facility – which is for companies rated as investment grade or equivalent,” he wrote.

“I am in discussions to resolve this uncertainty and further announcements will be made shortly.”

Sky News revealed last week that Rothschild, the investment bank, had been asked to advise ministers on a package of measures, and that one option could include direct taxpayer investments in airline shares.

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