Treasury wants airlines to say how they will repay their loans

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DALLAS – The Treasury Department wants airlines to say how they will compensate the government for $ 25 billion in subsidies used to keep employees on the payroll during the coronavirus outbreak.

The Economic Relief Bill passed last week gives the Secretary of the Treasury the power to take a stake in airlines that get help from taxpayers.

The law provides for grants and an additional $ 25 billion in loans or loan guarantees for passenger airlines affected by the sharp decline in travel since the epidemic. The number of people passing through security checkpoints at U.S. airports has fallen by more than 90% from a year ago, and airlines have suspended nearly all of their international flights. 

The Treasury Department warned airlines in a document posted Monday evening to request help by the end of Friday or face delays in processing their requests. If they don’t apply by April 27, they could be kicked out.

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American Airlines has said it will seek $ 12 billion. Other carriers said on Tuesday they were still reviewing conditions. Airline CEOs and unions have lobbied Congress and the White House for the grant money, which must be spent on salary expenses in order to avoid the need for layoffs.

It was not immediately clear whether the Treasury would partially take over the airlines or what the scale of those stakes would be. The Treasury ordered airlines “to identify financial instruments to be issued to the Secretary which, in the sole discretion of the Secretary, provide appropriate compensation to the federal government for the provision of wage bill support.”

This may include warrants, preferred stocks, debt securities or other options. A key and unresolved question is the price at which the warrants could be converted into shares, according to industry officials.

Jamie Baker, an analyst at JP Morgan, said the Treasury seemed to let airlines set the cost of securing the subsidies, at least initially. Negotiations on terms such as equity investments are likely to follow, but the cost is unclear, he said.

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