By: Steven M. Taber, Esq.
Both the passenger air carriers and the cargo air carriers have been hit hard by the restrictions that have been placed on travel, the state and local “stay at home” orders and the collapse of world markets. Although both are considered “essential businesses,” the demand for air carriers has slackened. As a result, Congress included support for the air transportation industry in the “Coronavirus Aid, Relief and Economic Security Act” or the CARES Act.
Subtitle B of the CARES Act provides “financial assistance” to air carriers and their “contractors.” The Act defines the term “contractor” to cover just about everyone who works at an airport or is connected to an air carrier and their operations at an airport. The financial assistance that is provided must be used exclusively for the continuation of payment of employee wages, salaries, and benefits. However, this financial assistance is not a loan.
Each air carrier or contractor may apply for financial assistance in an amount equal to the salaries and benefits that the company incurred during the period from April 1, 2019, through September 30, 2019. Air carriers that report their salary and benefits under Part 241 of title 14 of the Code of Federal Regulations, will use the reported amount. All other air carriers and contractors must certify through sworn financial statements (or other appropriate data), as to the amount of “wages, salaries, benefits, and other compensation” paid to their employees during that same period.
The intent of the CARES Act is to get this money into the marketplace extremely quickly. It provides that the Transportation Secretary will publish “streamlined and expedited procedures” not later 5 days (!) after the enactment of the CARES Act. After that, the Secretary will make initial payments not later than 10 days (!!) after the enactment of the Act.
In addition to agreeing to using the financial assistance to pay for “wages, salaries, and benefits,” each air carrier or contractor must give assurances that it will:
- Not lay off any employees or reduce pay rates and benefits until after September 30, 2020;
- Not buy or sell equity securities (listed on a national securities exchange) of the air carrier or contractor (or its parent company) through September 30, 2021 (In other words, you cannot use the financial assistance to buy back stock);
- Not pay dividends, or make other capital distributions, with respect to the air carrier or contractor’s common stock (or equivalent interest) through September 30, 2021; and
- Meet the requirements of §§ 4115 and 4116 of the Act, which cover collective bargaining and limits executive compensation, respectively.
Air carriers must also agree to continue service to any point that the air carrier served before March 1, 2020. Finally, the Act states that the Secretary of Transportation “may receive warrants, options, preferred stock, debt securities, notes, or other financial instruments issued by the recipients of financial assistance which would provide ‘appropriate compensation’ to the federal government for the provision of the financial assistance.” It is not yet clear how this provision will be implemented. The thinking at this point is that this is meant to cover air carriers who, in the past year or so, paid large bonuses to their executives and/or used substantial sums to buy back stock.
The CARES Act also suspends air travel and aviation fuel excise taxes for the duration of the COVID-19 emergency. Air carriers and contractors are also eligible to receive loans and loan guarantees under Subtitle A of the Act. Those loans can be used to cover losses other than wages, salaries and benefits to “provide liquidity to eligible businesses, States, and municipalities related to losses incurred as a result of coronavirus.” There are specific earmarks for air carriers, but not for contractors in the loan provisions.
The disclaimer: the CARES Act was passed by the Senate on Wednesday, March 25, 2020. The House has said that they will take the Act up on Friday, March 27, 2020. While it is anticipated that the House will not attempt to change any of the language contained in the current CARES Act, there certainly is that possibility. If the House passes the bill, the President has indicated that he will sign it. This article is based on the version of the bill that passed the Senate on Wednesday night.
If you have any questions regarding the CARES Act, or any other aviation/aerospace-related legal matter, contact Steven M. Taber.
Steve is a Partner at Leech Tishman and is based in the firm’s Pasadena office. He focuses his practice primarily on aviation and airport development law matters and environmental law. Steve can be reached at 626.796.4000 or via email at email@example.com.
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