Stimulus empowers Treasury to rescue airlines with $25 billion in direct assistance

Stimulus empowers Treasury to rescue airlines with $25 billion in direct assistance
© Greg Nash

The 700-plus page stimulus package the Senate is drafting will give Treasury Secretary Steven MnuchinSteven Terner MnuchinWhite House not optimistic on near-term stimulus deal Sunday shows - Stimulus debate dominates On The Trail: The first signs of a post-Trump GOP MORE broad authority to rescue beleaguered airlines and related distressed companies with $46 billion in direct financial assistance.

The bill sets aside $25 billion for U.S. airlines, which face the threat of bankruptcy without government intervention, $4 billion for air cargo carriers and $17 billion for other distressed companies related to critical national security, such as Boeing, the airplane manufacturing giant. 

The aid is part of a broader $500 billion corporate liquidity fund that would be created to help companies in an acute credit crunch.  

ADVERTISEMENT

Some Republicans, such as Sen. Pat ToomeyPatrick (Pat) Joseph ToomeyDunford withdraws from consideration to chair coronavirus oversight panel GOP senators push for quick, partial reopening of economy NSA improperly collected US phone records in October, new documents show MORE (Pa.), who helped negotiate the assistance, favored giving the airlines low-interest loans. But airline CEOs, who called Mnuchin and senators repeatedly throughout the negotiations, warned of looming bankruptcy and insisted simply setting up loans wouldn’t be enough.

“My preference would have been that like the other industries across America that will access credit through the 13(3) program — I would have preferred the direct funding from the Treasury to the airlines to be in the form of a loan, to be in the form of an extension of credit,” Toomey said.

Airline CEOs, however, warned negotiators that applying for credit through the Treasury Department and Federal Reserve’s joint liquidity program under Section 13(3) of the Federal Reserve Act would take too long, when they’ve had to cancel a majority of their flights because of the coronavirus.

So negotiators have set up a special category of money “the Treasury secretary will have the discretion to extend to airlines other than a loan.”

“We didn’t end up in the place that I thought would have been ideal but in the scheme of things I think this entire title, Title IV, is going to do a tremendous amount of good,” Toomey said. “We had some lively conversations over the last few days.” 

ADVERTISEMENT

Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellGOP scrambles to fend off Kobach in Kansas primary Meadows: Election will be held on November third Don't let Trump distract us from the real threat of his presidency MORE (R-Ky.) called Toomey, Senate Commerce Committee Chairman Roger WickerRoger Frederick WickerThe Hill's Coronavirus Report: INOVIO R&D Chief Kate Broderick 'completely confident' world will develop a safe and effective COVID-19 vaccine; GOP boxed in on virus negotiations Hillicon Valley: Lawmakers zero in on Twitter after massive hack | US, UK, Canada allege Russian hackers targeted COVID-19 vaccine researchers | Top EU court rules data transfer deal with the US is illegal Lawmakers zero in on Twitter following massive hack MORE (R-Miss.) and Senate Banking Committee Chairman Mike CrapoMichael (Mike) Dean CrapoChamber of Commerce, banking industry groups call on Senate to pass corporate diversity bill Senate panel advances Trump Fed nominee who recently supported gold standard Senate panel to vote on controversial Trump Fed pick Shelton MORE (R-Idaho) into his office around midnight to sign off on the last-minute negotiated change.

What has yet to be determined is how the assistance would be structured to provide some way to compensate U.S. taxpayers and avoid the label “bailout.” 

One possibility is the government would get an equity stake in airlines that take the direct assistance, although that idea is giving some companies heartburn. Boeing CEO David Calhoun said Tuesday that his company may not accept federal aid if it requires giving the Treasury Department a large stake.

Republican negotiators have added a ban on the Treasury Department or other federal representative using part ownership to vote on corporate governance. 

Airlines that take direct assistance will have to comply with numerous conditions set out in the bill.

Toomey said given the airlines' current market capitalization, it’s likely U.S. taxpayers will get a very low return on any equity stake, which is why he preferred offering long-term, low-interest loans. 

“My concern is that given the market capitalization of this industry, there’s not enough equity there to create a commensurate return,” he said. “We had this discussion, we had this argument and it ended up the way it did.” 

Toomey said the money will be “allocated probably transaction by transaction to the airlines and there will be some kind of equity stake.”

“That’s all to be determined and it’s discretion at the secretary,” he added.

“We’ve made it clear that if the federal government ends up with stock of any kind in any of these companies, it may not vote the stock,” Toomey emphasized. “The last thing we want is for the government to be controlling these companies.”