Alerts and Updates

Department of Treasury Issues Guidance on Air Carrier Industry Assistance from CARES Act

April 7, 2020

Borrowers will be required to provide certain supplemental information to the Treasury Department.

On March 30, 2020, the U.S. Department of the Treasury issued guidance to air carriers for $32 billion in emergency relief grant aid for payroll outlined in the Coronavirus Aid, Relief and Economic Security Act (CARES Act), signed into law by the president on March 27, 2020. An additional $46 billion is authorized for loans from the Treasury under Section 4003(b) of the CARES Act. These grants and loans are dedicated to the airline industry.

Grant Program

To be eligible to receive payments under the Treasury’s payroll support program, an applicant must agree to:

  • Use payments exclusively for the continuation of employee wages, salaries and benefits;
  • Refrain from conducting involuntary layoffs or furloughs, or reducing pay rates and benefits, of employees of the applicant and its subsidiaries (or, in the discretion of the Secretary of the Treasury, any affiliated entity) until September 30, 2020;
  • Through September 30, 2021, ensure that neither the applicant nor any subsidiary or affiliate purchases an equity security of the applicant or the direct or indirect parent company of the applicant that is listed on a national securities exchange; and
  • Through September 30, 2021, ensure that the applicant shall not pay dividends or make other capital distributions with respect to the common stock (or equivalent interest) of the applicant or any subsidiary.

Additional restrictions on applicants specified in the CARES Act include:

  • Collective bargaining agreements: Support payments may not be conditioned by the government based on an applicant’s implementation of measures to enter into negotiations with the certified bargaining representative of a craft or class of employees of the applicant under the Railway Labor Act or the National Labor Relations Act, regarding pay or other terms of employment;
  • Limitations on certain employee compensation;
  • The issuance of financial instruments to Treasury to compensate it for the award of funds;
  • Prohibitions related to suspension and debarment;
  • Disclosure of information to the Department of Transportation; and
  • Continuation of certain air service to areas serviced before March 2020.

Loan Program

Entities eligible to apply for a loan are:

  • Passenger air carriers;
  • Cargo air carriers;
  • Businesses certified by the Department of Transportation under 14 C.F.R. Part 145 and approved to perform inspection, repair, replacement or overhaul services that have not otherwise received adequate economic relief in the form of loans or loan guarantees under other programs authorized by the Act;
  • Ticket agents that have not otherwise received adequate economic relief in the form of loans or loan guarantees under other programs authorized by the Act; and
  • Businesses critical to maintaining national security.

Under the CARES Act section 4003(c)(2) loan program, the Treasury Department may enter into an agreement once they have made determinations that include, but not limited to, the following:

  • No credit available elsewhere.
  • The duration of the loan is as short as practicable and no longer than five years.
  • No stock buybacks until 12 months after the date the loan is no longer outstanding by the borrower or any affiliate of the borrower.
  • No payment of dividends or capital distributions until 12 months after the date the loan is no longer outstanding.

Borrowers will be required to provide certain supplemental information to the Treasury Department, as outlined in the issued loan guidance.

Applications under the CARES Act grant program were due April 3, 2020; however, the Treasury Department will receive applications until 11:59 p.m. Eastern on April 27, 2020. After that date, applications will be subject to discretionary review by the Treasury and grants will be subject to the availability of funds.

The CARES Act loan program application is not yet available and the requirements outlined requirements are considered to be preliminary and not final.

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Duane Morris has created a COVID-19 Strategy Team to help organizations plan, respond to and address this fast-moving situation. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

For More Information

If you have any questions about this Alert, please contact Alan C. Kessler, Michael E. Barnicle, Jamie E. Brown, any of the attorneys in our Transportation, Automotive and Logistics Industry Group, any member of the COVID-19 Strategy Team or the attorney in the firm with whom you are in regular contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.