Alaska Air Group, the parent of Alaska Airlines and Horizon Air, will accept $992 million in payroll support and plans to apply for $1.1 billion in loans to support short-term liquidity under the provisions of the federal CARES Act.
The Seattle-based company on 14 April said it had agreed with the US Treasury Department that $267 million of those funds will be provided in the form of a loan that must be repaid. The payroll aid covers 70% of the parent company’s budgeted payroll and benefits costs through 30 September as the company endures “a time of near-zero revenue”, Alaska Air Group chief executive Brad Tilden states.
Alaska, which had $2 billion in unrestricted cash on 14 April, has cut capacity by 80% for April and May.
As a condition of the CARES Act, the Treasury will receive the right to buy 847,000 non-voting shares of Alaska Air Group at a price of $31.61 per share, Alaska discloses in a US Securities and Exchange Commission filing.
The Coronavirus Aid, Relief, and Economic Security Act provides $25 billion for passenger carriers specifically to support its workers as well as an additional $25 billion allocated for loans not relating to labour. That payroll support was meant to be provided as grants, but the law also gave Treasury discretion to set financial requirements.
Other conditions for the CARES Act support include bans against furloughing workers or reducing pay and benefits through 30 September, limits to executive compensation into 2022 and halts to dividend payments and stock buybacks through September 2021.
While airlines, including Alaska and Horizon, badly need cash during this crisis, labour groups worry that requiring companies to pay back part of the payroll support “creates a long-term burden that is likely to harm the very people the grants were designed to help”.
A joint statement on 15 April from groups including the Association of Flight Attendants-CWA and the Air Line Pilots Association urged Congress “to remedy this distortion of the law and ensure frontline workers are not further harmed by this crisis”.
The US Department of Transportation is limiting network service requirements for Alaska and other CARES Act recipients that provided less than 10% of all US domestic capacity in 2019. Alaska faces some unique essential air service challenges, however.
Serving the largest state by landmass and the closest to the Arctic, Alaska provides air bridges and cargo deliveries to remote communities “to safely fly those who need to travel, deliver critical groceries, supplies, and other cargo across our network”, Tilden says.
This responsibility became more urgent after the regional airlines of Alaska-based Ravn Air Group on 5 April suspended all operations and filed for Chapter 11 bankruptcy protection to obtain debtor in possession funding while applying for CARES Act funding. Tilden has said Alaska Air Group will coordinate with the state government and the Alaska Air Carriers Association to ensure communities stay connected. Despite reducing capacity to 20% for April and May, Alaska plans to take steps including chartering service “to ensure critical work force movements”.
