Airline Stimulus Plans in the U.S. and Europe in Response to the COVID-19 Pandemic

Pillsbury Winthrop Shaw Pittman LLP


  • CARES Act includes $61 billion relief package for U.S. airlines, consisting of grants to passenger airlines, loans to passenger airlines, grants to cargo airlines, loans to cargo airlines and aid to airline contractors.
  • UK airline industry directed to exhaust all other sources of funding prior to receiving any dedicated government support, while other European governments take steps to grant aid to airlines.
  • New law offers U.S. government an option for an ownership stake, while other governments consider the same.

U.S. Airlines

The historic $2.2 trillion stimulus bill that President Trump signed into law on March 27 includes $61 billion in relief for the airline industry. The relief package includes a combination of direct grants and loans for the airlines, with the grants conditioned on the discretion of the government to take an ownership stake. An earlier version of the legislation consisted of loans only. Over the past week the airline industry lobbied vigorously for a relief package with grants and loans, to compensate for reduced liquidity and payroll concerns. After significant pushback, the current version is closely aligned with the airline industry’s request.

Specifically, the relief consists of $25 billion in grants for passenger airlines to be used for payroll, $4 billion in grants for cargo carriers to be used for payroll, $25 billion for passenger airlines in loans/loan guarantees, and $4 billion for cargo carriers in loans/loan guarantees. The bill also provides $3 billion in economic assistance to airline contractors, such as caterers, ground crew, and ticketing and check-in employees.

Under the legislation, Treasury Secretary Steven Mnuchin would be empowered to require equity or other securities in return for the grant money. The Wall Street Journal reported late Thursday that Mnuchin intends to invoke that authority. Reportedly, in a conference call with reporters, Senator Pat Toomey (R-Pa.) said the equity would most likely be options and that if the government took a common stock position, it would not retain voting rights.

The bill also attaches the following conditions to the grants and loans: a service and employment commitment through September 30, 2020; limits on executive compensation; a prohibition on stock buybacks and dividend issuance for airlines while they are receiving assistance; warrant provisions for loans; and collective bargaining protections.

In addition, the legislation suspends certain aviation excise taxes for the period from enactment through January 1, 2021, including the 7.5 percent tax on amounts paid for commercial air transportation. Domestic and international segment fees are also suspended for the same period of time.

Over the past weeks, the U.S. airline industry has warned that most of the world’s airlines will be bankrupt by the end of May as a result of capacity cuts and cancellations. On March 19, the airline industry sent an urgent letter to Congress renewing its request for payroll protection grants. Last week, the airline industry began considering the unprecedented prospect of canceling nearly all domestic passenger flights for an unspecified amount of time. On Wednesday, March 25, TSA reported it screened only 239,000 passengers. In ordinary times, during the spring break season between mid-March and April, the agency is accustomed to

For comparison, after the terror attacks of September 11, 2001, Congress approved a $15 billion measure to support the airline industry, with $5 billion in direct grants and $10 billion in federal loan guarantees. In the wake of the global financial crisis in 2008, the government provided a $700 billion relief package to Wall Street and a $50 billion bailout to General Motors.

European Airlines

With UK airlines (including those with strong balance sheets) reporting that they have been or will be suspending travel operations, grounding the majority of their aircraft fleet and reducing costs in the coming months, UK airline owners and senior management have been requesting that the UK government to provide financial aid of up to U.S.$7.5 billion as well as the availability of credit facilities and such other measures (including eliminating taxes) to rescue the UK aviation industry. Some UK airlines (namely, British Airways) opted to exhaust self-help options before approaching the UK government directly for state aid. In the UK, the government initially promised specific support for the airline industry, having made available a new £330 billion package of financial aid for the economy generally, but it has recently confirmed that no dedicated support package will be made available for UK airlines until they have exhausted all other sources of funding and options (from existing facilities, shareholders and from entering into new financing arrangements, including by way of sale and leasebacks of their unencumbered assets, for example) prior to looking to the UK government for help.

Elsewhere in Europe, airlines such as Air France-KLM, Lufthansa, Austrian Airlines, Brussels Airlines, TUI, Wizz Air and Swiss have been planning to apply to the governments of the states in which their operations are based for direct state aid. Governments of other European countries have already agreed to provide support to national airlines in various forms to help them to survive the crisis. For example:

  • The Swedish and Danish governments have agreed to jointly provide guarantees of DKK3 billion to enable SAS to borrow money on the commercial market, and SAS is also expected to benefit from the support package being offered to Norwegian carriers by the Norwegian government.
  • Finnair has a provisional agreement with Finland’s government for a state guarantee of up to €600 million.
  • The Italian government intends to take over control of Alitalia and nationalize the airline. Reuters reports that the government has earmarked €500 million to keep the airline afloat.
  • The Norwegian government has announced suspension of national aviation taxes to help the airline industry and have confirmed a support package of NOK3 billion for Norwegian Air (as part of a NOK6 billion package for Norwegian carriers), as long as owners and lenders also contribute to improving the company’s financial situation. It is reported that Norwegian Air has already managed to secure financing in the form of government-guaranteed loans.

With some airlines having little revenues in cash, no standby loan facilities and few unencumbered aircraft, as opposed to other airlines that have been less complacent about liquidity and therefore are able to survive the disruption for longer, for the governments to treat both cases equally would be a distortion of competition. It is open to question whether the governments will have time to customize solutions by carrier or whether expediency in light of the current worldwide turmoil will require that a uniform approach be taken. For the time being, the UK government has suggested that it will only enter into negotiations with individual airlines seeking bespoke support if the airlines cannot obtain the required assistance from alternative sources--so far, Virgin Atlantic is understood to be among the first of the UK airlines to have asked the UK government for financial help in addition to the general aid package made available to all British companies. State aid rules which are currently in place under European competition law to prevent the distortion of competition have been relaxed, and regulators also suspended an obligation for carriers to use 80 percent of their takeoff and landing positions or risk losing them the following year. As long as the UK is a European Union Member State, EU law, including state aid rules, will continue to apply in full to the UK until the close of a transition period (expected 31 December 2020).

On a global perspective, IATA reports airlines worldwide could lose $252 billion in revenue this year from the coronavirus pandemic, threatening the survival of the industry. IATA has called for swift government support, as liquidity becomes an increasing concern for several airlines. Some governments are considering the option of buying equity stakes in airlines, as conventional aid packages may not be sufficient to save the industry from collapse—whether this comes to fruition, and under what conditions, remains to be seen. Given the prospect of increased governmental interference in the running of their businesses, stronger airlines with greater liquidity that are able to survive without state aid for a longer period may look to use government support as a last resort.

A modest recovery in Chinese domestic travel is a positive sign, but as the virus spreads worldwide, that recovery may be quickly diminished. Current figures show that 30 percent of the global airline fleet is grounded, and with the virus yet to peak in most countries, that is expected to increase over the next few weeks whereas by comparison during the SARS epidemic, this figure only reached 13 percent. Those aircraft still flying are reckoned to be at only 10 percent to 20 percent capacity. While aviation is only one sector that is facing severe challenges and seeking support, the deepening crisis faced by airlines means that committed, innovative and decisive government support is needed to help the battered airline industry worldwide.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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