On March 27, 2020, President Trump enacted the “Coronavirus Aid, Relief, and Economic Security Act” (the “CARES Law“), a more than $ 2 trillion stimulus package intended to ease the economic and social disruption the country faces in the wake of the COVID-19 outbreak. Unsurprisingly, the new law includes funding and funding for airlines and passenger airports, which are among those expected to be hardest hit by the epidemic.
While the CARES Act provides targeted funding for certain transportation programs, such as $ 56 million for the Essential Air Service program, the largest aviation-related assistance programs are:
- $ 25 billion for loans and loan guarantees to passenger airlines;
- $ 25 billion for salaries, wages and benefits for airline employees; and
- $ 10 billion for airport assistance.
Below is a description of these programs.
$ 25 billion for loans and loan guarantees to passenger airlines
The CARES law provides that the Secretary of the Treasury (the “Secretary”) With $ 25 billion to provide loans and loan guarantees to passenger airlines, repair stations and ticket agents. The main features of this program are—
- Application process: The Secretary is required to publish the procedures for applying for loans or loan guarantees within 10 days of the enactment of the law, that is to say April 6, 2020.
- Terms of agreements: Loans and loan guarantees shall be made “in such form and on such terms and conditions and contain the covenants, representations, guarantees and requirements” as required by the Secretary and at rates “based on risk and average return current on outstanding US marketable bonds of comparable maturity ”.
- Conditions for obtaining a loan / loan guarantee: The Secretary, at his discretion, may enter into an agreement to make a loan or loan guarantee if:
- (1) the applicant is an eligible business for which credit is not reasonably available at the time of the transaction;
- (2) the envisaged obligation is “prudently incurred”;
- (3) the loan or loan guarantee is sufficiently secured or is made at a rate which (i) reflects the associated risk, and (ii) to the extent possible, is not less than an interest rate based on pre-COVID-19 conditions;
- (4) the term of the loan or loan guarantee is as short as possible (but not more than 5 years);
- (5) the relevant agreement provides that, up to 12 months after the loan or loan guarantee is no longer outstanding,
- (i) neither the beneficiary nor any affiliated company may purchase an equity security of such company on a national stock exchange, “except to the extent required by a contractual obligation in force on the date of the promulgation of the this law ”; and
- (ii) the beneficiary cannot pay dividends or make other distributions of capital in respect of its common shares;
- (6) the relevant agreement provides that, until September 30, 2020, the beneficiary will maintain its employment levels as they existed on March 24, 2020, “to the extent possible”, and in no case shall reduce employment levels of more than ten%;
- (7) the relevant agreement contains a certification that the recipient is established or organized in the United States and has significant operations, and a majority of its employees based, in the United States; and
- (8) the beneficiary has “incurred or is expected to suffer such covered losses that the continuation of the operations of the business is compromised, as determined by the secretary”.
- Limitations on certain employee compensation: To receive a loan or loan guarantee, an airline must enter into an agreement with the Secretary which provides that for the period from which the agreement is executed until one year after the loan or guarantee of loan is no longer in progress –
- (1) no officer or employee who received total compensation greater than $ 425,000 in 2019 will receive (a) total compensation that exceeds, for a period of 12 consecutive months, the total compensation received in 2019, or (b) severance pay or similar benefits that exceeds double the maximum total compensation received in 2019; and
- (2) no officer or employee who received total compensation greater than $ 3 million in 2019 will receive total compensation in any 12 consecutive months greater than (i) $ 3 million and (ii) 50% of the excess $ 3 million received in 2019.
- Continuation of services: The Secretary of Transportation may require, “to the extent reasonable and practicable,” that an airline receiving a loan or loan guarantee maintain scheduled air service as the Secretary of Transportation deems necessary. In exercising this authority, the Secretary of Transportation must take into account the needs of small, remote communities and the need to maintain well-functioning health care and pharmaceutical supply chains.
- Collective agreements: The issue of a loan or a loan guarantee cannot be made conditional on the renegotiation of a collective agreement.
$ 25 billion to support airline workers
The CARES Act grants passenger airlines $ 25 billion to be used exclusively for maintaining employee wages, salaries and benefits. The main features of this program are—
- Payment amount: Distributions are formula-based, based on wages and benefits declared by the airline for the period April 1, 2019 to September 30, 2019.
- Application process: The Secretary is required to publish “simplified and accelerated procedures” within five days of the promulgation of the law, that is to say April 1, 2020.
- Payment schedule: The initial payment must be made within 10 days of the enactment of the law, and the Secretary is required to establish procedures for subsequent payments.
- Insurance required to receive financial assistance: To be eligible to receive this financial assistance, an airline must enter into an agreement, or otherwise certify, that:
- (1) until September 30, 2020, it will not reduce rates of pay and benefits, or take involuntary leave;
- (2) until September 30, 2021, it will ensure that neither the airline nor any of its affiliates buy an equity security of the airline listed on a national stock exchange;
- (3) until September 30, 2021, it will ensure that the airline will not pay dividends or make any other distribution of capital in respect of its ordinary shares (or an equivalent interest); and
- (4) it will meet certain other requirements under the CARES Act.
- Continuation of services: The Secretary of Transport may require, “to the extent reasonable and possible”, that an airline receiving this financial assistance maintain a scheduled air transport service that the Secretary of Transport deems necessary. In exercising this authority, the Secretary of Transportation must take into account the needs of small, remote communities and the need to maintain well-functioning health care and pharmaceutical supply chains.
- Collective agreements: This financial assistance cannot be made conditional on the renegotiation of a collective agreement.
- Limitations on certain employee compensation: Financial assistance under this article of the CARES Act is only available if an airline enters into an agreement that provides for only during the two-year period between March 24, 2020 and March 24, 2022
- (1) no officer or employee whose total compensation exceeded $ 425,000 in 2019 will receive (i) total compensation that exceeds, for any period of 12 consecutive months, the total compensation received in 2019, or (ii) compensation severance or other benefits in the event of termination of employment that exceeds double the maximum total compensation received in 2019; and
- (2) no officer or employee who received total compensation greater than $ 3 million in 2019 will receive total compensation for 12 consecutive months greater than (i) $ 3 million and (ii) 50% of the excess of 3 million dollars received in 2019.
- Refund: To provide the federal government with “appropriate compensation” for providing this financial assistance, the Secretary may receive warrants, options, preferred shares, debt securities, notes or other financial instruments issued by the companies. airline beneficiaries.
$ 10 billion for “airport aid subsidies”
The CARES Act gives the Federal Aviation Administration $ 10 billion to distribute in the form of “airport assistance grants” to “airport sponsors.” The main features of this program are—
- Definition of “sponsor”: A “sponsor” is (i) a public body, which is defined as “a state or political subdivision of a state, or organization receiving tax support”; and (ii) a private owner of a “public use airport”, which is defined as an airport used or intended to be used for public purposes – (a) which is under the control of a public body; and (b) whose area is used or intended to be used for landing, take-off or surface maneuvering of aircraft is in public property.
- Use of funds: This financial assistance “may not be used for any purpose not directly linked to the airport”.
- At least $ 7.4 billion is available “for any purpose for which airport revenues can legally be used” on condition that 50% “must” be allocated pro rata among all commercial service airports based on each sponsor’s debt service for fiscal 2018 as a percentage of combined debt service for all commercial service airports and each sponsor’s unallocated reserve ratio to their respective debt service.
- Retention of workers: Airports benefiting from this financial assistance must continue to employ, until December 31, 2019, at least 90% of their employees. However, this requirement:
- Does not apply to non-primary or non-primary airports; and
- May be canceled if it is determined that the airport is experiencing economic hardship “as a direct result” of the requirement, or if the requirement “reduces the safety or security of aviation”.