The U.S. Treasury Department today announced its intention to sell warrants it holds to buy equity in various U.S. airlines. These warrants were acquired as a condition of the $54 billion in federal assistance provided to the industry during the COVID-19 pandemic in 2020 and 2021.
To help airlines weather the severe downturn in air travel caused by the pandemic, Congress has approved financial assistance, including direct aid and low-cost loans. The Treasury Department’s upcoming auctions, scheduled to begin the week of June 3, will involve selling warrants received in exchange for $14 billion that airlines are required to repay from the overall aid.
American Airlines (NASDAQ: AAL), which received $12.6 billion in government aid, was among the participating airlines. Delta Air Lines (NYSE: DAL) received $11.9 billion, United Airlines was given $10.9 billion, and Southwest Airlines (NYSE: LUV) received $7.2 billion. The funds largely covered the airlines’ payroll costs for an 18-month period.
As part of the bailout provisions, airlines are prohibited from conducting layoffs or furloughs, face limits on executive compensation, and are restricted from buying back shares and paying dividends until September 2022. The warrants held by the Treasury were valued at about $357 million in May 2022, according to a draft congressional report. However, the current value of the warrants has not been disclosed, and the Treasury did not immediately respond to questions about their current value.
The airline sector has suffered an unprecedented decline during the COVID crisis, with US air passenger numbers plummeting 60% in 2020, reaching their lowest level since 1984. The industry has seen a decline of more than 550 million passengers as airlines cut costs and struggle to stay afloat.
In contrast to the conditions imposed on U.S. airlines, other countries have demanded higher reimbursement rates for their COVID-19 airline aid. Additionally, other industries in the United States have not received the same level of financial support from the government. Some legislative proposals, such as a requirement for airlines to reduce carbon emissions, were not included in the final terms of the aid.
Air travel has rebounded since the pandemic, returning to pre-COVID levels and on track to set a new record this year. Delta Air Lines declined to comment on the upcoming warrant sale, and other major airlines have yet to issue statements on the matter.
Source: Investing
