By Alison Sider 

Flight attendants urged federal officials not to make grants to airlines contingent on government stakes, saying they believe executives would refuse -- costing jobs in an industry hard hit by the novel coronavirus pandemic.

The $2 trillion economic-relief package that Congress passed last week included $25 billion in grants for passenger airlines to pay workers, along with $25 billion in loans and loan guarantees.

The law also allows Treasury Secretary Steven Mnuchin to take a stake or warrants, options or other financial instruments in airlines in exchange for the direct payments. That provision could dissuade carriers from accepting assistance, unions representing flight attendants at United Airlines Holdings Inc., American Airlines Group Inc., Southwest Airlines Co. and other airlines wrote in a letter to Mr. Mnuchin on Wednesday.

"This effectively renders the payroll grants a poison pill that will cost us our jobs," union leaders wrote.

Some airlines met with Treasury Department officials Tuesday to discuss whether there are alternatives to direct equity stakes in exchange for grants and loans, people familiar with the discussions said. Government equity stakes are raising concerns about dilution of airline shares, these people said.

The pushback against possible direct stakes from flight attendants could complicate negotiations to aid an industry decimated by the drop in air travel as the pandemic has spread around the world. With planes flying nearly empty on many routes, airlines are cutting costs severely.

Airlines and labor unions fought for part of the government aid to come as grants to pay employees. Without that, carriers had said they likely would need to resort to furloughs or pay cuts.

Some Republicans objected to cash payments. People familiar with the negotiations have said that allowing the government to take stakes in airlines -- and so benefit from the eventual recovery -- was part of the effort to resolve the impasse.

Some airlines are more reluctant to accept stimulus loans, said an industry official who has been in touch with carriers in recent days. Airline executives are wary of restrictions on layoffs and furloughs, given the bleak outlook for travel demand, the official said.

In 2009, the Treasury Department took a 61% equity stake in General Motors Co. in exchange for about $40 billion in loans. The money came from the government's Troubled Asset Relief Program, launched in late 2008 mostly to bail out banks during the financial crisis. Treasury also spent $12.5 billion on a stake in Chrysler Corp.

Ultimately, the government lost about $11.8 billion on its investment in the auto makers. The Treasury Department sold down its stake in GM over time, unloading its final GM shares in December 2013. It sold its final shares in Chrysler in 2011 to Italian auto maker Fiat SpA, which eventually created Fiat Chrysler Automobiles NV.

Steven Rattner, the chief architect of the Obama administration's bailouts for GM and Chrysler, said the government tried to have a light touch.

"I don't see any argument for why the airlines should just be given money or lent money at below market rates," he said. "They have to take it on commercial terms."

The unions representing flight attendants said they didn't object to requiring a stake in exchange for loans, but said grants to cover payroll should be treated differently because they go directly to workers.

Rep. Peter DeFazio (D., Ore.), chairman of the House Transportation and Infrastructure Committee, echoed that view Wednesday.

"Take your pound of flesh. But don't slow down the payroll assistance which is what [Mr. Mnuchin] is in the process of doing right now," Mr. DeFazio said during a conference call with reporters.

Some industry officials have said they don't expect the government to impose onerous terms, and carriers including American Airlines have said they plan to apply for the aid.

Other airlines have said they are reviewing the Treasury's terms for the assistance. In guidance released on Monday, the Treasury asked airlines seeking grants to identify financial instruments and propose terms for "appropriate compensation for the government."

The Treasury has said the financial instruments could include warrants, options, preferred stock, debt securities or notes, but didn't provide other specifications. The Treasury has encouraged airlines seeking grants to apply by Friday.

Access to the loans is also contingent on airlines not having alternative funding sources from the private sector. U.S. carriers have raised billions of dollars in new loans in recent weeks. American drew down another $2.5 billion Wednesday.

Write to Alison Sider at alison.sider@wsj.com

 

(END) Dow Jones Newswires

April 01, 2020 18:57 ET (22:57 GMT)

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