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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 MnuchinOn The Money: Schumer urges Democrats to stick together on .9T bill | Collins rules out GOP support for Biden relief plan | Powell fights inflation fears Mnuchin expected to launch investment fund seeking backing from Persian Gulf region: report Larry Kudlow debuts to big ratings on Fox Business Network 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.  

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Some Republicans, such as Sen. Pat ToomeyPatrick (Pat) Joseph ToomeyPhilly GOP commissioner on censures: 'I would suggest they censure Republican elected officials who are lying' Toomey censured by several Pennsylvania county GOP committees over impeachment vote Toomey on Trump vote: 'His betrayal of the Constitution' required conviction 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.” 

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Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellKlain on Manchin's objection to Neera Tanden: He 'doesn't answer to us at the White House' Democratic fury with GOP explodes in House Murkowski undecided on Tanden as nomination in limbo MORE (R-Ky.) called Toomey, Senate Commerce Committee Chairman Roger WickerRoger Frederick WickerPassage of the John Lewis Voting Rights Advancement Act is the first step to heal our democracy Overnight Health Care: US surpasses half a million COVID deaths | House panel advances Biden's .9T COVID-19 aid bill | Johnson & Johnson ready to provide doses for 20M Americans by end of March 11 GOP senators slam Biden pick for health secretary: 'No meaningful experience' MORE (R-Miss.) and Senate Banking Committee Chairman Mike CrapoMichael (Mike) Dean CrapoBecerra says he wants to 'build on' ObamaCare when pressed on Medicare for All Yellen deputy Adeyemo on track for quick confirmation Menendez reintroduces corporate diversity bill 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.”