CHICAGO/WASHINGTON (Reuters) – U.S. airlines and contractors faced a deadline of 5 p.m. on Friday to tap the federal government for up to $32 billion in payroll grants to help them ride out a dramatic drop in air travel demand due to the new coronavirus outbreak.

FILE PHOTO: Delta Air Lines passenger planes are seen parked due to flight reductions made to slow the spread of coronavirus disease (COVID-19), at Birmingham-Shuttlesworth International Airport in Birmingham, Alabama, U.S. March 25, 2020. REUTERS/Elijah Nouvelage

The U.S. Treasury set that deadline for the airline sector to receive funds as soon as possible and to propose financial instruments such as warrants or equity options to compensate taxpayers for the money.

Congress last week approved $25 billion in cash grants for passenger airlines, $4 billion for cargo carriers and $3 billion for airport contractors like caterers and airplane cleaners under a massive $2.3 trillion coronavirus relief package.

Many Democrats and airline labor unions have urged U.S. Treasury Secretary Steven Mnuchin not to demand equity or warrants in return for the grants because they are meant to ensure carriers take the funds and pay workers until Sept. 30, by which time many hope travel demand will have started to recover.

Companies can request the amount they paid in salaries and benefits in the second and third quarters of 2019.

American Airlines Group Inc (AAL.O), with the largest number of full-time employees among U.S. airlines at 133,700 in 2019, has said it will be seeking up to $6 billion in grants.

United Airlines Holdings Inc (UAL.O), Delta Air Lines (DAL.N) and Southwest Airlines Co (LUV.N) have also signaled they would apply for the grants. The sector is also eligible for up to $32 billion in loans, though there is no immediate deadline for those requests.

Facing what they call an unprecedented crisis, airlines across the world are seeking government aid. International seat capacity has dropped by almost 80% from a year ago and half the world’s airplanes are in storage, suggesting the aviation industry may take years to recover from the pandemic.

Reuters reported that Air France-KLM (AIRF.PA) is in talks with banks to receive up to 6 billion euros ($6.5 billion) in loans guaranteed by the French and Dutch governments.

As airlines scramble to save cash, planemakers are bracing for a drop in demand for new planes. Airbus SE (AIR.PA) is studying a sharp cut in output of its top-selling A320 jet series, sources told Reuters, while Boeing Co (BA.N) has outlined a plan for voluntary layoffs.

Reporting by Tracy Rucinski and David Shepardson; Editing by David Gregorio

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