Congress Provides COVID-19 Relief to Airlines and Aviation Workers
On March 27, 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. The $2 trillion bipartisan legislation serves as a third round of federal government support in the wake of the economic fallout from the coronavirus (COVID-19) pandemic. Among other things, the Act provides significant relief to air carriers and aviation employees. We outline some of the key provisions below.
Targeted Relief to Passenger and Cargo Air Carriers
One of the key provisions of Title IV of the Act provides $500 billion to support “Eligible Businesses.” The Act defines Eligible Businesses as both passenger and cargo air carriers (together, “Air Carriers”) and businesses that have not otherwise received adequate economic relief in the form of loans or loan guarantees under the Act.1The $500 billion is allocated as follows:
For tax purposes, such loans and guarantees are to be treated as indebtedness for purposes of the Internal Revenue Code (the “Code”), but the acquisition of equity under such programs will not result in a change in ownership for purposes of Code Section 382 (dealing with certain built-in losses following ownership changes). The Department of the Treasury will provide subsequent regulations with guidance as to the relevant tax treatment.
Terms and Conditions for Monies Allocated to Air Carriers and Critical Businesses
The CARES Act requires the Secretary of the Treasury (the “Secretary”) to publish application procedures and minimum requirements for loans, loan guarantees, and other investments within 10 days of enactment. For Air Carriers seeking loans and guarantees consisting of monies specifically allocated for passenger air carriers, cargo air carriers, and businesses critical to maintaining national security, key terms and conditions include:
Terms and Conditions for Monies Allocated to 4003(b)(4) Relief
Air Carriers, moreover, may also seek direct loans through 4003(b)(4) Relief facilities. Key provisions for direct loans made under these facilities are similar to those for Air Carrier and Critical Businesses Relief and include:
Note that for 4003(b)(4) Relief (but not for Air Carrier and Critical Businesses Relief), the Secretary may waive the prohibitions on stock buybacks, dividend payments, and executive compensation if it is deemed that such a waiver is necessary to protect the interest of the federal government.
Lender Financing Facilities
The CARES Act also provides for the creation of a 4003(b)(4) Relief facility to provide financing to banks and other lenders to make direct loans to Air Carriers and other Eligible Businesses. Key terms and conditions of direct loans made through such a facility include:
Continuation of Certain Air Service
For any Air Carrier receiving loans or loan guarantees under the previously mentioned facilities, the Secretary of Transportation may require (to the extent reasonable and practicable) that such recipients maintain scheduled air transportation service as may be deemed necessary to ensure services to any point served by that carrier before March 1, 2020. This authority, however, terminates on March 1, 2022.
Aviation Excise Tax Holiday
The Act suspends aviation excise taxes until January 1, 2021.
Targeted Relief to Aviation Employees
In addition to relief for Air Carriers, the CARES Act also provides financial assistance targeted to Air Carrier and aviation industry workers. More specifically, the Act allocates funds to Air Carriers and certain contractors on the condition that they be used to continue wages, salaries, and benefits for Air Carrier and aviation industry employees (excluding corporate officers). The funds are allocated in the following amounts:
Awardable amounts under these provisions are capped at the total amount of salaries and benefits (or, in certain cases, the total amount of wages, salaries, benefits and other compensation) reported by a recipient from April 1, 2019 through September 30, 2019. Note that these reported amounts are subject to audits by the Inspector General of the Department of the Treasury.
The CARES Act requires the Secretary to publish streamlined and expedited procedures for Air Carriers and contractors to submit requests for employee-related financial assistance within five days after enactment, and the Secretary must make initial payments for all approved requests within 10 days after enactment.
Terms and Conditions for Monies Allocated to Aviation Employee Relief
In order to qualify for the financial assistance, Air Carriers and contractors must satisfy the following terms and conditions:
Continuation of Certain Air Service
Finally, just as in the conditions of loans and guarantees described above, the Secretary of Transportation may require (to the extent reasonable and practicable) that recipients maintain scheduled air transportation service as may be deemed necessary to ensure services to any point served by that carrier before March 1, 2020. This authority, however, terminates on March 1, 2022.
For additional information, please contact any member of Haynes and Boone’sAviation Practice Group.
1 At this point, it remains unclear which businesses would qualify as “businesses that have not otherwise received adequate economic relief in the form of loans or loan guarantees” under the Act. However, we expect that the Department of the Treasury will promulgate rules and regulations to provide further guidance.