By Alison Sider and Kate Davidson
The U.S. Treasury Department has agreed to terms for loans to American Airlines Group Inc. and four smaller airlines as part of an aid program to help the industry weather the coronavirus pandemic.
The Treasury said that in addition to American, Frontier Airlines, Hawaiian Airlines, SkyWest Airlines and Spirit Airlines Inc. had agreed to loan terms and signed letters of intent.
Air travel fell sharply this spring as government restrictions on travel and fears of infection kept passengers from flying. While air travel has started to rise, demand remains a fraction of what it was a year ago and airline executives have said they expect a full recovery will likely take years.
These are the first airlines to accept government loans from a $25 billion pool Congress earmarked under the Cares Act, the $2.2 trillion economic stimulus package passed in March. Major carriers have also received another $25 billion in federal aid to pay workers through the end of September to avoid mass layoffs they said would have been inevitable otherwise.
American expects to complete the $4.75 billion loan in the third quarter, Chief Executive Doug Parker and President Robert Isom wrote in a letter to employees Thursday. The airline has previously said it was seeking to pledge its frequent-flier program as collateral.
Even with the infusion of government funds, airlines face a dire outlook. American is burning through $35 million in cash per day, Mr. Parker and Mr. Isom wrote, and likely has more than 20,000 more employees than it needs to operate the shrunken schedule it anticipates this fall.
"To be clear, this doesn't mean 20,000 of our team members will be furloughed in October, it simply means we still have work to do to right-size our team for the airline we will operate," the executives wrote.
Airlines have been scrambling to raise as much cash as they can as travel bookings have fallen sharply, and American executives have said that the government loans were likely the most efficient form of financing available. The airline last week raised another $4.5 billion to bolster liquidity, including $2.5 billion in senior notes at an interest rate of 11.75%.
Other carriers such as Delta Air Lines Inc., United Airlines Holdings Inc. and Southwest Airlines Co. have previously said they've applied for government loans but hadn't decided whether to tap them. Airlines have through the end of September to draw the funds.
The Treasury didn't detail the amounts of the loans or the terms, but said the borrowers would have to provide warrants, equity stakes, or senior debt instruments. The Treasury said it is continuing discussions with other carriers that are eligible for loans.
Write to Alison Sider at firstname.lastname@example.org and Kate Davidson at email@example.com
(END) Dow Jones Newswires
July 02, 2020 10:46 ET (14:46 GMT)Copyright (c) 2020 Dow Jones & Company, Inc.