(Reuters) – The U.S. Treasury Department is holding firm on the terms of a $25 billion offer for government aid to airlines to help them meet payroll during the coronavirus downturn, officials said on Monday, and the plan could give the government more than 3% of American Airlines Group Inc (AAL.O).

FILE PHOTO: A member of a ground crew walks past American Airlines planes parked at the gate during the coronavirus disease (COVID-19) outbreak at Ronald Reagan National Airport in Washington, U.S., April 5, 2020. REUTERS/Joshua Roberts

Some airlines are increasingly resigned to the terms, which would require 30% of the funds — roughly based on six months of each carrier’s payroll — to be repaid and give the government warrants equal to 10% of the loan amount, the officials said, noting that agreements could be reached within the coming days. Under those terms, the government could end up with the largest equity stake in American Airlines, which has the most employees of the U.S. carriers and has said it was seeking about $6 billion in payroll support.

It also has the lowest market capitalization of the four main U.S. carriers at about $5.3 billion, less than the amount it would receive in aid.

One airline official said the warrant price had been locked before Monday, when airline shares fell sharply.

According to airlines’ market capitalization on Friday, the government could end up owning about 2.3% of United Airlines Holdings Inc (UAL.O), 1% of Delta Air Lines Inc (DAL.N), 1.3% of JetBlue Airways Corp (JBLU.O), and 0.6% of Southwest Airlines Co (LUV.N).

Raymond James analyst Savanthi Syth reached similar calculations, which assume that each carrier gets the amount it requested and that the government exercises the warrants, which allow purchase of shares at a set price, to the full extent possible. It is likely, however, that the government simply cashes them out by getting the appreciation in share price at a date in future.

Based on wages and benefits in the second and third quarters of 2019, United was eligible for about $6 billion in grants, Delta about $5.6 billion and Southwest about $4 billion.

The potential equity dilution is lower than many analysts had feared. Still, airline shares fell on Monday on disappointment that a portion of a $25 billion payroll support package would have to be repaid.

This is causing a dilemma for some airlines worried about adding more debt to their balance sheets before a recovery in travel demand is more certain, said Syth.

“In a quick recovery it makes sense to take this grant. But if you’re not expecting a quick recovery and you expect operational levels to remain low next winter, you don’t want to be so laden with debt that might harm more people at the end of it,” said Syth.

“That’s the calculation that they have to make: do you say OK, for the long-term health of the company does it make sense to take this money and make furlough decisions later where you might be in a worse debt position, or to maybe walk away from this money and take some of the pain early and then be in a better position once we’re out of the worst of this to try to recover.”

If things do not improve, airlines may need this summer to file notices of impending mass layoffs that could come soon after Sept. 30 — the date by which they are required to keep employees on staff if they accept payroll support.

The prospect of layoffs could prompt Congress to take another look at the issue, either in a new round of support for airlines or by forgiving the loans attached to the grants, some people said.

Those layoffs could come just weeks before the 2020 presidential election.

On Sunday, just 90,510 travelers went through security checkpoints – another new low – down from nearly 2.5 million a year earlier.

Reporting by Tracy Rucinski and David Shepardson; editing by Jonathan Oatis

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