CNN: Airlines balk at paying back a portion of federal bailout money

Maddox

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Airline companies have not received billions in taxpayer dollars because they are thus far balking at paying back a portion of the federal stimulus funding, sources tell CNN.

The airlines have received term sheets from the government specifying that 70% of the funds paid to each company will be grants and 30% will be a low-interest loan, according to three aviation industry sources.

The first $100 million paid to each airline will be a grant, and the 70-30 split applies to payments above that level, according to one aviation source. The airlines had expected those funds -- $25 billion for passenger airlines and $3 billion for cargo airlines -- to be entirely grants that would not be repaid.


The airlines said Monday that grants alone -- rather than the combination -- "are an important part of the efforts to protect jobs."

"Direct Payroll Assistance funding in the form of grants only is considerably more effective for our employees rather than a hybrid combination of instruments," said Airlines for America, which represents major carriers including American, Delta, Southwest and United, on Monday.

It noted that the law set aside $25 billion for passenger airlines and $3 billion for cargo airlines "in the form of passthrough monies" that the airlines must use for employee payroll and benefits. Another $28 billion is available for loans for other expenses.
The funds come with other conditions specified by Congress, such as prohibitions on stock buybacks and layoffs, and limits on executive compensation. The government also cannot extend aid to any airline contemplating bankruptcy.

The airlines and employee unions joined forces to push the Treasury Department against taking stock warrants in the companies in exchange for the payroll and benefit grants.

The government was required to make its first payments a week ago. Facing a 96% drop in passengers, airlines have cut deeply from schedules and asked tens of thousands of employees to take unpaid leave. Airlines have cut more than 70% of capacity and the flights that do fly have only about 1 in 10 seats filled, according to industry data.
Airlines that do agree must then work out logistical matters with Treasury, Novak said, such as whether the payment comes in one or multiple installments.

 
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