The CARES Act: What It Means for ALPA Members
By John Perkinson, Senior Staff Writer
The main concourse of Ronald Reagan Washington National Airport on April 15.
The economic impact of the novel coronavirus (COVID-19) pandemic has been catastrophic on the U.S. airline industry, as carriers struggle to operate amid countless travel restrictions and the mandates and guidelines for Americans to stay at home to prevent the virus from further spreading. Passenger airlines report that travel demand has shrunk to less than 5 percent of normal levels. With decimated schedules and legions of parked aircraft, America’s airlines are facing a cash-flow and liquidity crisis and are in desperate need of financial aid.
The aviation industry finally received some good news on March 27 when the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. According to the U.S. Department of the Treasury, the $2 trillion economic stimulus package was passed with the goal of “protecting the American people from the public-health and economic impacts of COVID-19.” In addressing aviation in the bill, Congress clearly recognized that the U.S. airline industry, which accounts for more than 5 percent of the country’s gross domestic product, impacts nearly 11 million jobs.
Not since 9/11 has the U.S. airline industry been offered this scale of relief from the federal government. While the 9/11 and coronavirus stimulus packages have some similarities, the terms of the latter legislation place a special emphasis on employees.
ALPA quickly responded to the CARES Act announcement with a public statement, observing, “From the moment that COVID-19 economic relief was considered, ALPA has been clear that any relief package must put frontline aviation workers first and help move our economy. ALPA pilots have been actively engaged in discussions of the bill, and through their collective activism, tens of thousands of pilots sent more than 130,000 letters to Capitol Hill and urged lawmakers on social media to protect pilot jobs by bringing economic relief and stability to our vital industry.”
The statement added, “By helping to stabilize the airline industry while protecting frontline aviation workers, we will ensure that, when the time comes, the return to normal operations will be done safely and swiftly.”
Airline pilots are continuing to serve as first responders throughout this international crisis, not only risking their health and well-being to operate this important component of the nation’s infrastructure, but also flying relief efforts to retrieve U.S. citizens from foreign countries and transport critical goods and personnel.
Dollars and sense
Title IV of the CARES Act provides payroll support payments for U.S. airlines amounting to $32 billion in direct grants specifically for airline employee salaries and benefits. This total includes $25 billion for the workers of passenger air carriers, $4 billion for cargo airline employees, and another $3 billion for contractors. Participating airlines must maintain their employment levels as of March 24, 2020, to the extent possible, and retain no less than 90 percent of their workers, as of that date, until Sept. 30, 2020.
The total assistance each airline is eligible for is based on the amount the specific carrier paid to workers between April 1, 2019, and Sept. 30, 2019, and the Treasury Department will establish applicable rules and procedures to distribute these funds. The federal government can’t tie a grant to an airline’s agreement to renegotiate existing collective bargaining agreements or to conduct new contract talks from the date financial aid is received until Sept. 30, 2020.
In addition to the $32 billion in payroll grants, passenger airlines have access to $25 billion, and cargo airlines can draw on $4 billion in loans and loan guarantees. The terms of both grants and loans are at the Treasury Department secretary’s discretion, and loans will be approved provided that it’s determined that the recipient is unable to access other credit, the debt is “prudently incurred,” and the loan is secured.
To ensure that this fiscal stimulus serves its intended purpose, certain conditions have been outlined. Per Section 4112 of the act, airline executives are barred from receiving pay raises or severance packages until March 24, 2022. This language specifically addresses employees with salaries above $425,000.
Carriers receiving aid can’t initiate stock buybacks or pay dividends until Sept. 30, 2021, and this deadline will be extended for another 12 months after any debts, which are incurred as part of the loan program, are no longer outstanding. Aid recipients will need to maintain base-level operations. Other stipulations of the act include the suspension of aviation-related excise taxes for the remainder of the year.
While the Treasury Department administers the initial stages of the program, the CARES Act establishes a special inspector general to monitor the ongoing pandemic recovery. This individual, along with a special committee, will provide oversight on all loans as well as any other related uses of taxpayer dollars.
Other CARES benefits
Among its extensive array of terms and conditions, the CARES legislation makes it easier for employees to access funds in their 401(k) accounts and IRAs. Plans are permitted to provide a penalty-free “coronavirus-related distribution” of up to $100,000 to a qualified individual through Dec. 31, 2020, and increased amount of plan loans through Sept. 23, 2020, to a qualified individual. The minimum funding requirements for defined-benefit plans have been eased, extending the deadline for minimum annual required contributions that would otherwise be due in 2020 to Jan. 1, 2021.
The use of Health Savings Accounts (HSAs) has been expanded to allow high-deductible health plans combined with HSAs to cover telehealth and remote-care services before the plan’s deductible is met. In addition, employees with HSAs, flexible spending accounts, and health reimbursement arrangements can use these funds to cover the cost of over-the-counter medications.
Read more about how these and other CARES Act benefit changes in the April 2020 issue of ALPA’s R&I Update.
For those confronting joblessness, CARES expands existing state unemployment insurance programs, making more individuals eligible and providing greater benefits. Individuals who are eligible for and receiving unemployment benefits should automatically receive federal pandemic unemployment compensation (FPUC) in the amount of $600 per week in addition to the regular unemployment benefits available under state law. FPUC is payable through July 31, 2020.
Unemployment benefits are also expanded for individuals who don’t otherwise qualify if the inability to work is due to a COVID-19-related reason. This new benefit, called pandemic unemployment assistance, provides up to 39 weeks of unemployment benefits if the individual experiences a job loss or a reduction in hours under certain circumstances.
While this new financial aid addresses many of ALPA’s concerns, potential ambiguities exist that the Association was quick to point out.
In an April 2 letter to Treasurer Secretary Stephen Mnuchin, DePete noted, “While we want to ensure grants help prevent carrier bankruptcy, we also believe the agency should be vigilant to ensure carriers that receive taxpayer assistance do not, as they did post 9/11, harm employees in bankruptcy, including through the use of Section 1113 of the bankruptcy code.
“Given that the Treasury makes careful note that its guidelines are subject to the secretary’s discretion to update or modify at any time, we believe the agency should use its broad authority to help stave off future bankruptcies and condition aid on the preservation of collective bargaining rights,” he said.
Summarizing his concerns, DePete asserted, “We ask that the Treasury provide publicly accessible information to help us partner with the department to ensure that taxpayer money provided to air carriers furthers the government’s essential goal of providing direct benefits to employees.”
As Air Line Pilot went to press, Mnuchin adjusted the initial terms of the financial relief, informing the nation’s major airlines that he wants them to repay some of the $25 billion grant money originally outlined to cover employee payroll costs.
In an April 10 statement, Mnuchin acknowledged, “Small- and medium-sized passenger aviation businesses are particularly vulnerable to the disruption from COVID 19.” Under the new conditions, airlines receiving grants of more than $100 million in payroll assistance would be required to pay back 30 percent of the total amount received above $100 million. Grants for these larger carriers would also come with equity warrants for 10 percent of the value of the loan or, more specifically, the right for the government to purchase shares of airline stock at a set price.
As applied, the $25 billion Congress approved for immediate cash grants would be adjusted to about $18 billion. The remaining $7 billion would be treated as loans. These and other conditions are subject to change as talks continue, and both the nation’s larger carriers and airline workers have expressed serious concerns.
In an April 14 press release, DePete responded, “We’re pleased that a number of airlines have decided to participate in the payroll support program, despite the constraints placed on this grant funding by the Treasury Department. Unfortunately, Treasury is undermining the intent of the CARES Act by treating a portion of the grants designed to protect jobs not as grants, but as loans, which will make it harder to stop layoffs and slow the recovery.”
He added, “In spite of this, we remain optimistic that more carriers will avail themselves of this funding―and that Congress will seek to overturn the constraints placed on this worker assistance program.”
In his correspondence, DePete raised a valid and alarming point. On Sept. 22, 2001, just weeks after the four coordinated terrorist attacks of 9/11, the Air Transportation Safety and System Stabilization Act (ATSSSA) was passed to provide federal aid to U.S. airlines. The measure offered the nation’s carriers $5 billion in immediate cash assistance and $10 billion in loan guarantees, where commercial loans weren’t available, “to provide a safe, efficient, and viable commercial aviation system in the United States.”
ATSSSA also offered tax assistance to airlines, allowing them to postpone an estimated $1.4 billion in certain tax payments by 180 days. Similar to the CARES Act, ATSSSA outlined restrictions and oversight as well as taxpayer compensation in the form of equity stakes in the airlines that participated.
Despite this generous aid from the federal government, the serious financial damage inflicted on the U.S. airline industry from 9/11 could be felt throughout the next 10 years, resulting in numerous Chapter 11 bankruptcies, including filings by these carriers with ALPA-represented pilots: Trans World Airlines (2001), US Airways (2002, 2004), United Airlines (2002), Delta Air Lines (2005), Northwest Airlines (2005), Aloha Airlines (2008), Sun Country Airlines (2008), and Mesa Air Group (2010). Alternatively, Chapter 7 bankruptcy filings for carriers with ALPA-represented pilots during the post-9/11 period included Sun Country Airlines (2002), Midway Airlines (2003), Aloha Airlines (2008), Air Midwest (2008), Gemini Air Cargo (2008), and Independence Air (2009).
The subsequent use of Section 1113 of the bankruptcy code by airline managements to sidestep collective bargaining became commonplace as a means of voiding contract terms pilots had agreed to in good faith.
Drawing from this experience, DePete in his April 2 letter to Mnuchin emphasized, “We make note that the conditions applied to Federal Reserve programs and facilities under Section 4003(3)(D)(i)(IX) of the CARES Act require that specific employers not abrogate an existing [collective bargaining agreement] for the term of the loan and a period of two years afterwards. The Treasury should use the same logic under its broad authority to require these same terms for air carriers receiving grants under Section 4003 as well.”
What long-term effect the CARES Act will have on the U.S. aviation industry remains to be seen. However, the fact that a portion of the legislation is targeted to protect pilots and other airline workers is a remarkable achievement. “For the first time in American history, rather than providing unfettered financial assistance to airlines, aid is conditioned to promote, rather than subordinate, the livelihoods of employees,” said DePete in his April 2 letter to Mnuchin.
“Pilots are committed to being equal partners with our airlines to navigate through these turbulent times, and we look forward to collaborating with you to ensure that we are successful,” DePete observed.
The CARES Act wasn’t the only legislation passed to address the effects of the pandemic on the economy and U.S. citizens. The Families First Coronavirus Response Act was enacted on March 18 to provide funding for free coronavirus testing, paid emergency leaves, and expanded unemployment benefits. Other bills passed include the Coronavirus Preparedness and Response Supplemental Appropriations Act and the Paycheck Protection Program and Health Care Enhancement Act. These provide additional funding for developing a vaccine and other preventive measures, finances for hospitals and testing, and resources to supplement grant money in the CARES Act.