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CARES Stimulus Extension for US Airlines

by Ajay Prakash

Turbulent Flights Ahead  for US Airlines – Credit: Business Insider

The most significant relief package is a $2.2 trillion stimulus called CARES (Coronavirus Aid, Relief, and Economic Security Act). The CARES bill was passed by the US Congress and signed by President Donald Trump on March 27, 2020. This stimulus was announced after the outbreak of the COVID-19 pandemic.

The stimulus, in the form of cash grants, was aimed at assisting the negatively impacted US industry in tiding over the crisis. The sole aim of the package was to protect jobs. The airlines had to be operating under the Federal Aviation Regulations. The relief package was also available to businesses in related segments such as maintenance-repair-overhaul (MRO) and ticketing agents.

What was in the stimulus for US Airlines?

CARES provided for a relief package of $25 billion to passenger carriers and $4 billion for cargo airlines. $17.5 billion was given to the airlines as a cash grant while another $7.5 billion was made available in the form of loans. The stimulus also provided an additional amount of $3 billion for supporting contractor payments.

Two points in the CARES act are noteworthy.

  1. Air Carrier Worker Support – The Act specifically mentions that the money has to be exclusively used for payment of employee wages, salaries and benefits. The provision will be available until the September 2020 salary payouts.
  2. Federal Excise Tax Relief – The Federal tax relief suspended the 7.5% tax on air transportation as well as $0.43/gallon tax on jet fuel. This relief is applicable until January 1, 2021.
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CARES Stimulus – Credit: Social Security Report

How US Airlines Benefited by CARES

The US airlines are a significant employer having a direct employee base of 750,000 people. The industry supports another 10 million indirect jobs. American Airlines, the largest US airline, employs about 100,000 people.

American Airlines received $4.1 billion in grants and $1.7 billion as a low-interest loan under the provisions of the CARES Act. Delta Airlines received $5.4 billion in grants and $1.6 billion as a loan. Similarly, Southwest Airlines received $3.2 billion and $1 billion as grant and a low-interest loan, respectively.
The smaller carrier such as JetBlue got $685 million in cash grants and a further $250 million in loans.

Some of the loans could be converted to airlines shares over the next five years.

Come October and Airlines Start Furloughs

With the first round CARES funding coming to an end on September 30, the airlines started to furlough employees. On October 1 United and American Airlines together gave furlough notices to 32,000 employees saying that they are unable to pay them wages once the Payroll Support program ends.

Not all airlines are furloughing employees. “Southwest has no current plans for furloughs,” according to a company representative.
Delta is in a similar position and has no immediate plans to lay-off any of its staff.

Strong Case for Extending CARES

CARES-2, as it is called today, is an extension of the CARES program to extend additional benefits to the airlines. On September 28, Peter DeFazio (Chairman, House Transportation and Infrastructure Committee) introduced a bill to sanction an additional $25 billion. The additional funds will be used to protect employees from involuntary furlough until March 31, 2021.

The House of Representatives speaker Nancy Pelosi said she would support this legislation. She called upon airlines to stop furloughing employees.
Pelosi in a statement said –

The massive furloughs and firings of America’s airline workers jeopardize the livelihoods of tens of thousands and threaten to accelerate the devastating economic crisis facing our nation. Today, I am calling upon the airlines to delay their devastating job cuts as a relief for airline workers is being advanced in Congress.”

Till it the stimulus is extended, the uncertainty for airline employees will continue. These employees have been at the frontline and carrying out duties under the threat of COVID-19. The US Government CARES for them – let’s hope so.

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