U.S. Treasury, airlines reach agreement in principle on payroll aid: sources

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(Reuters) – The U.S. Treasury Department and passenger airlines have reached an agreement in principle on a $25 billion payroll support package meant to help airlines weather the economic impact of the coronavirus on travel demand, sources with knowledge of the matter said on Tuesday.

Announcements on the agreement are expected later on Tuesday, they said.

Under the terms laid out by Treasury officials last week, the government would receive repayment on 30% of the funds awarded to large carriers and warrants equal to 10% of the loan amount.

The six largest U.S. airlines – American Airlines Group Inc (O:AAL), United Airlines Holdings Inc (O:UAL), Delta Air Lines Inc (N:DAL), Southwest Airlines Co (N:LUV), JetBlue Airways Corp (O:JBLU) and Alaska Airlines (N:ALK) – are all expected to accept, the sources said.

Based on wages and benefits paid in the second and third quarters of 2019, American and United were each eligible for about $6 billion, Delta about $5.6 billion, Southwest about $4 billion, and JetBlue and Alaska roughly $1.2 billion each.

U.S. passenger airlines can also apply for a separate $25 billion loan scheme under the government’s $2.3 trillion stimulus package, known as the CARES Act, and had lobbied for the payroll relief portion to be free cash.

The statute gave Treasury the authority to demand compensation for the grants, but did not require it. According to the terms, companies receiving funds cannot lay off employees before Sept. 30 or change collective bargaining agreements.

When the law was approved last month, major airlines said the money would protect jobs through September but warned that the continued challenges facing the industry would require more action, including some tough decisions in the months ahead if demand is slow to recover.

Estimated global airline losses from the coronavirus pandemic have climbed to $314 billion, 25% more than previously forecast, the International Air Transport Association (IATA) said on Tuesday, owing to the severity of the economic downturn and a slower than previously expected reopening of international routes.

Alexandre de Juniac, the Geneva-based organization’s CEO, said leaving the middle seat vacant was among likely conditions for a resumption of air travel to be discussed with governments in a series of coordinated meetings around the world.