Alaska Airlines and Horizon Air agreed to general terms today with the U.S. Treasury regarding their participation in the Payroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act. The airlines are currently working through the detailed agreements necessary before the Treasury will disburse funds and expect to finalize those agreements later this week.
“We are grateful for and humbled by this support,” said Brad Tilden, Alaska Air Group’s Chairman and CEO. “This aid will bring immediate and sorely needed liquidity to the airline industry and will enable all airlines – including Alaska – to continue serving our customers and to keep our people at work, while we adjust to an extraordinary reduction in demand. All of us at Alaska want to express our deep appreciation to President Trump and Vice President Pence, to Secretaries Mnuchin and Chao, to those working at the department of the Treasury, and to all members of Congress – especially members from Alaska, Washington, Oregon, California, and other key states we serve. These leaders have worked around the clock to support the aviation workforce and our nation’s critical transportation infrastructure.”
The program will provide Alaska and Horizon with a total of $992 million, to be used exclusively for the cost of employee payroll and benefits. The funding is expected to cover about 70% of budgeted costs through Sept. 30, 2020, and was based on similar costs reported by the airlines for the period of April through September 2019.
“Our employees are tremendous, serving our guests and running a safe and reliable operation every day,” said Tilden. “They’ve continued to do so through this crisis, to safely fly those who need to travel, deliver critical groceries, supplies, and other cargo across our network, including remote parts of Alaska. This federal support enables us to take care of them through a time of near-zero revenue. They have faced challenges before and come out stronger. And we have every expectation that we will do so again this time.”
Of the $992 million in funding to be disbursed under the PSP, $267 million will be in the form of a loan and must be repaid to the government. Additionally, the Treasury will receive the right to buy 847,000 non-voting shares of Alaska Air Group at a price of $31.61/share.
Under this program, Alaska also agreed to additional conditions such as no involuntary furloughs or changes to rates of pay through Sept. 30, 2020, continued suspension of dividends and share repurchases until Sept. 30, 2021, limits on executive compensation through March 24, 2022, and continuation of service as reasonable and practicable under a Department of Transportation rule.
Alaska and Horizon also communicated to the Treasury their intent to apply for $1.128 billion in federal loans through a separate program authorized under the CARES Act. This process is still ongoing. Funds loaned to Alaska and Horizon through this program will support short-term liquidity needs and must be paid back in full.