DALLAS – American Airlines and four smaller carriers have reached a deal with the government for billions in additional federal loans, a sign of the industry’s desperate struggle to survive a drop in air travel caused by the virus pandemic.
The Treasury Department said Thursday it has signed letters of intent for new loans to American, Spirit Airlines, Frontier Airlines, Hawaiian Airlines and SkyWest Airlines.
All major U.S. airlines had previously agreed to a combination of grants and loans to help cover salary costs through September 30. These five carriers are the first to tentatively accept loans from a separate $ 25 billion kitty that Congress has set aside as part of a $ 2.2 billion measure to help businesses affected by the pandemic.
American Airlines said it signed a term sheet with the Treasury for a $ 4.75 billion loan, which would be in addition to the $ 5.8 billion the Treasury has already agreed to give to American.
“We need to complete legal work to reach a definitive credit agreement, but we plan to finalize this loan in the third quarter,” US CEO Doug Parker and Chairman Robert Isom said in a note to employees. They said the additional loan would give the United States about $ 15 billion in liquidity.
American is widely regarded as the weakest financially of the largest US airlines, having entered the pandemic with the greatest debt. Isom said in May that the airline was considering using its AAdvantage frequent flyer program as collateral for a federal loan.
Details on the terms of the new loans for American and others were not immediately clear. The Treasury Department said it would release the documentation within 72 hours of the deals being finalized – which, judging by American’s comments, could take weeks.
A spokeswoman for SkyWest, which operates regional flights for major airlines, said the company “is still assessing our level of involvement with the Treasury.” The other three airlines signing letters of intent did not immediately respond to requests for comment.
Spirit and Frontier are low cost carriers primarily catering to leisure travelers. Hawaiian relies heavily on vacationers visiting the islands from the Americas and Asia – they were subjected to a 14-day quarantine upon arrival.
Airlines received special treatment from Congress and the White House when drafting the virus aid measure, which was approved in March. It has provided up to $ 50 billion in subsidies, loans and guarantees to passenger airlines, plus $ 8 billion for freight carriers. The measure gave the Treasury the power to demand compensation from taxpayers, including in the form of partial dividends.
Airlines are expected to cut thousands of jobs in October, when federal payroll assistance runs out. Many encourage employees to resign or retire.
American Airlines, which started the year with around 130,000 employees, still expects to have 20,000 too many for the number of flights it plans to make this fall, its executives said on Friday. Delta Air Lines warned 2,500 pilots last week of potential time off.
Six major airline unions have called on Congress to give companies an additional $ 25 billion to prevent layoffs until next March.
Analysts believed interest on the second batch of federal loans would be lower due to terms – including giving the government a potential equity stake – and the availability of money from private sources. Major carriers including American, United, Delta and Southwest have raised billions of available liquidity in the private credit market.
Treasury Secretary Steven Mnuchin said his department was still discussing loans with other airlines and hoped to make deals as soon as possible. Some, including United Airlines, have said they will apply for loans but may not use them.
Air travel to the United States fell about 95% from March 1 to mid-April, as the government restricted travel to slow the spread of the virus and travelers feared contracting it. Travel has picked up slowly since then, but air passenger numbers are still around 75% lower than a year ago.
Investors reacted moderately to the Treasury announcement. Shares of American Airlines and its three closest competitors – Delta, United and Southwest – ranged from 1% to 1% at midday.