What The Government Wants, In Exchange For Airline Payroll Grants - View from the Wing

The aviation bailout portion of the CARES Act totals $78 billion.

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• $25 billion in loans to passenger airlines
  
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• $4 billion in loans to cargo airlines
  
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• $17 billion for businesses that are "critical to maintaining national security" (a euphemism for Boeing)
  
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• $29 billion payroll support grants to passenger and cargo airlines
  
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• $3 billion payroll support grants for airline contractors

When people talk about $58 billion for the airlines, that includes $29 billion in payroll grants and $29 billion in low interest loans to passenger and cargo airlines. It doesn't include money for airline contractors or for Boeing.

The airlines want the payroll grants, which they viewed as free money. It could cover their full payrolls through the summer. Without these grants they would lay off a large portion of their staff. But it covers the staff they won't lay off. And if covers amounts they won't have to pay people still employed but on voluntary leaves or reduced hours.

The way the law was written the administration doesn't have to just give away all the money. While the industry and Democratic senators (at the behest of airline unions) have argued that the money shouldn't come with requirements, the Treasury Secretary reportedly placed a call to airline CEOs laying out the requirements for the $25 billion in payroll grants.

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• 70% of the money will be straight-up given to the airlines
  
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• 30% will be low interest loans
  
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• And in exchange the government takes 10% of the value of the loan in warrants, giving the government an option to buy shares later at current stock prices

Any airline taking $100 million or less will receive it free and clear without condition.

However an airline like Delta, American, or United might be looking at (order of magnitude) $5 billion.

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• $3.5 billion free and clear
  
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• $1.5 billion low interest loan
  
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• $150 million in warrants, creating an upside for the government if airlines recover

This makes some sense, though is still way too generous to the airlines. They wouldn't have laid off more than 70% of staff based on public statements about future schedules. So they're only getting 'free and clear' the absolute worst case for layoffs, and this doesn't even account for payroll savings they accrue from reduced hours. Employees get made whole - even the most expensive employees earning several times as much as those in the country who are hurting and get little to nothing.

An airline could take payroll grants, use the free and clear portion to cover payroll they'd have laid off, and pocket the extra. They could straight-up return the low interest loan funds (there's another $29 billion in loans they can apply for). And all they give up is 3% of the total in warrants.

Nonetheless they'll still be negotiating through the weekend. Airline lobbyists will be out in full force, twisting arms among top lawmakers and administration officials, to these terms relaxed further.