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Exclusive: Major US Airlines Consider Government Loans After Grants – Sources

(Reuters) – Several major U.S. airlines are preparing to apply for a $ 25 billion U.S. government loan program this week after winning billions in federal wage subsidies, people familiar with the matter said, as the industry is bracing for a slow recovery from the coronavirus pandemic.

FILE PHOTO: Delta Air Lines passenger jets are parked due to flight cuts made to slow the spread of coronavirus disease (COVID-19), at Birmingham-Shuttlesworth International Airport in Birmingham, Alabama, United States, March 25, 2020. REUTERS / Elijah Nouvelage / File photo

United Airlines Holdings Inc UAL.O, which unlike other major carriers had yet to disclose its allocated payroll relief, said on Wednesday it would receive around $ 3.5 billion in direct subsidies and around $ 1.5 billion loan dollars at low interest rates and issue treasury warrants to buy approximately 4.6 million common stock shares.

While some airlines originally planned to use only the $ 25 billion in federal wage subsidies, there is now a growing realization that the terms of the separate $ 25 billion loan program could be significantly reduced. better than those available in the capital markets, people said.

The Treasury gave its agreement in principle on Tuesday to grant wage aid to airlines but will not release the funds all at once.

He asked airlines to apply by Friday if they want the loan deal to be given priority consideration, according to documents posted on his website, and by April 30 to be assured. If there is money left over, late applicants may receive funds at a later date.

Freight carriers are also facing the same timeline to apply for a $ 4 billion pooled fund.

An airline official told Reuters most airlines had to apply, in part because they would not be required to withdraw the loan until the end of September and because conditions are favorable. Airlines will have to offer collateral such as planes, spare parts and routes in exchange for loans and warrants equivalent to 10% of the loan value.

The expected candidates are added to American Airlines Group Inc. AAL.O, who on Tuesday confirmed plans to apply for a $ 4.75 billion loan before Friday’s deadline for priority review. Alaska Airlines Inc [ALKAIR.UL] also said he would seek $ 1.1 billion in federal loans.

Among other major carriers, Southwest Airlines Co LUV.N will likely apply, while United and Delta Air Lines DAL.N were still considering, people said.

Spirit Airlines Inc SAVE.N is considering applying for the loans, a spokesperson said. The budget carrier said on Tuesday it expected to “agree soon on the terms” of the payroll assistance subsidies.

Airlines shares closed mixed on Wednesday, with American ending up 2.9% and United up 3.1%, while Southwest closed down 5.6% and Delta down 0. 8%.

Large airlines must repay 30% of grant funds provided in the form of 10-year low-interest loans and issue treasury bills equivalent to 10% of the value of the grants.

American, which will issue payday loan warrants for the federal government to buy 13.7 million shares at the closing price of $ 12.51 on April 9, said Wednesday it would also issue warrants. underwriting related to the separate loan of $ 4.75 billion for approximately 38 million shares at the same price as of April 9. The warrants do not have any voting rights, he said.

On the loan application due by April 30, airlines must describe any changes they plan to make to employment levels through the end of the year. Under payroll assistance, airlines are required to retain their workforce until September 30.

Airlines must refrain from paying dividends or repurchasing shares and set limits on executive compensation for up to one year after full loan repayment.

“These are absolutely right things that we have been asked to do and we are certainly not complaining about them,” US chief executive Doug Parker told CNBC on Wednesday.

Reporting by Tracy Rucinski in Chicago and David Shepardson in Washington; Editing by Sonya Hepinstall, Matthew Lewis and Peter Cooney

Margarita W. Wilson

The author Margarita W. Wilson