Senate proposed airline rescue package has loans but no cash

Senate Republicans have proposed extending up to $50 billion
in secured loans to passenger airlines and up to $8 billion in secured loans to
cargo carriers as part of the Covid-19 economic rescue package.

The proposed legislation, put forward by Senate majority
leader Mitch McConnell on Thursday, would also allocate $300 billion to small
business of 500 people or less. 

The proposal falls well short of the request airlines made
early this week for $25 billion in grants to go along with $25 billion in
loans. In addition, loans to airlines would come with stipulations. 

Notably, airlines would be prohibited from giving raises to
anyone through February 2022 whose total compensation was $425,000 or more last
year. 

Also, the Department of Transportation would have the
authority to require airlines that accept a government loan to continue flying
to destinations served before the Covid-19 crisis began — a move designed to
assure continued air service to small communities. 

The bill would also allow the U.S. Treasury to share in airline
profits, with the terms of such arrangements spelled out in loan contracts. 

Such measures, however, don’t appear to be enough to satisfy
Democrats in Congress, who have joined labor unions in calling for any airline
rescue package to emphasize workers.

“We are beginning to review Senator McConnell’s proposal and
on first reading, it is not at all pro-worker and instead puts corporations way
ahead of workers,” Senate minority leader Chuck Schumer tweeted Thursday
evening. 

In a joint statement Thursday, Schumer and speaker of the
House Nancy Pelosi said that to earn Democratic support, any economic stimulus
package “must include new, strong and strict provisions that prioritize and
protect workers, such as banning the recipient companies from buying back
stock, rewarding executives and laying off workers.”

The rescue bill also would provide direct payments to taxpayers. Most individuals who reported income of less than $75,000 in 2018 would receive a check of $1,200 and couples who reported less than $150,000 would receive a check for $2,400. Families would get an extra $500 monthly for each dependent child. 

U.S. airlines made a net profit of nearly $100 billion
between 2013 and the third quarter of 2019, according the Bureau of
Transportation Statistics, but according to a Bloomberg analysis, they have
used 96% of their free cash flow in the past decade on stock buybacks.

Like Pelosi and Schumer, airline industry unions have called
for the rescue package to contain strong provisions protecting them from
layoffs and ensuring benefits, such as health care. 

Airlines on Friday said the Senate Republican proposal doesn’t
offer enough relief to beleaguered carriers. 

“Loans alone are not sufficient and should be coupled with a
worker payroll assistance program and targeted tax relief, which will allow
airlines to keep operating through this crisis and protect the 750,000 jobs of
hard-working individuals who are directly employed by the industry,” said trade
group Airlines for America.

The Regional Airline Association (RAA), whose members serve
small and medium-sized communities, mostly flying under the American Eagle,
Delta Connection and United Express brands, offered more emphatic criticism. 

“The bill was designed to support airlines through loans
secured by assets, RAA CEO Faye Malarkey Black said. “Regional airlines do not
have the same assets that larger airlines have. In many cases, regional
airlines lease their fleet. In all cases, regional aircraft do not have the
same value as mainline aircraft.”

She noted that two-thirds of U.S. airports are served only
by regional carriers. 

“While the bill suggests the [DOT] secretary may require
some air service to small communities, these small communities are served
exclusively by regional airlines,” Malarkey Black said. “As written, there
would be no regional airline in a position to serve any market, let alone the
smallest ones.”

The bill is more generous to small business. Loan
forgiveness would be provided to companies who use the funds to pay employees.

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