CARES Act -What it means for aviation,
airlines, workers and small business
On March 27, 2020, the
“Coronavirus Aid, Relief, and
Economic Security Act” or
the “CARES Act” (the “Act”)
was signed into law. This Act
provides aviation industry relief,
AIRPORT VOICE, APRIL 2020 9
including (1) loan guarantees
for air carriers, operators
and other eligible businesses
(2) air carrier employee protections,
(3) small business
relief, subject to the various
conditions and restrictions
imposed within the Act, and
(4) federal excise tax relief for
certain applicable air transportation
taxes.
Air Carrier Worker
Support
The Act provides financial
assistance that is to be exclusively
used for the continuation
of payment of employee
wages, salaries and benefits
to employees of (1) passenger
air carriers, in an aggregate
amount up to $25 billion; (2)
cargo air carriers, in the aggregate
amount up to $4 billion;
and (3) contractors, in an
aggregate amount up to $3 billion.
Financial assistance provided
to an air carrier or contractor
shall be in such form
and on such terms and conditions
as the Treasury determines
appropriate.
(1) refrain from conducting
involuntary furloughs or reducing
pay rates and benefits
until September 30, 2020;
(2) through September 30,
2021, ensure that neither the
air carrier or contractor nor
any affiliate of the air carrier
or contractor may, in any
transaction, purchase an equity
security of the air carrier
or contractor or the parent
company of the air carrier
or contractor that is listed
on a national securities exchange;
(3) through September 30,
2021, ensure that the air carrier
or contractor shall not
pay dividends, or make other
capital distributions, with respect
to the common stock (or
equivalent interest) of the air
carrier or contractor; and
(4) meet the requirements
of sections regarding collective
bargaining collections
and executive compensation
restrictions.
The DOT is authorized to
require, to the extent reasonable
and practicable, an air
carrier provided financial assistance
under this subtitle to
maintain scheduled air transportation
service, as the DOT
deems necessary, to ensure
services to any point served
by that carrier before March
1, 2020.
The Treasury may receive
warrants, options, preferred
stock, debt securities, notes,
or other financial instruments
issued by recipients of
financial assistance under the
Air Carrier Worker Support
program, which, in the sole determination
of the Treasury,
provide appropriate compensation
to the government.
Aviation Industry
Loan Guarantees
The Act provides liquidity
in the form of loans, loan guarantees
and other investments
to aviation industry eligible
businesses that incurred, or
are expected to incur, covered
losses such that the continued
operations of the business are
jeopardized.
-$25 billion for passenger
air carriers, including general
aviation operators that
conduct flights under Federal
Aviation Regulations (“FAR”)
Part 135, and eligible businesses
that are certified under
FAR Part 145 approved to
perform inspection, repair, replace
or overhaul services and
ticket agents;
-$4 billion for cargo air carriers;
-$17 billion for businesses
critical to maintaining national
security; and
-$454 billion, plus any unused
amounts available above,
through a program to be established
by the Federal Reserve
Board to support eligible businesses
and state and municipal
governments through a
variety of means, including
loans and loan guarantees for
other eligible businesses, as
defined below.
Air carriers must
maintain scheduled
transportation
The Act authorizes the Department
of Transportation
(“DOT”) to provide, to the extent
reasonable and practicable,
to an air carrier receiving
loans or loan guarantees under
the Act to maintain such
scheduled air transportation
service as DOT deems necessary
to ensure services to
any point served by that carrier
before March 1, 2020 until
March 1, 2022.
Loan Guarantee
Restrictions
The Act imposes several
restrictions and burdens on
eligible businesses taking advantage
of the grants and loan
guarantee program that make
participation in such programs
burdensome.
First, the Act requires
government equity or debt
participation by eligible businesses
utilizing the loan or
loan guarantee program, and
“the principal amount of any
obligation issued to an eligible
business … shall not be
reduced through loan forgiveness.”
In other words, eligible
businesses must exchange
warrants, an equity interest
or debt in their companies to
take advantage of the loan or
loan guarantee programs, and
the loans cannot be forgiven.
Second, participating eligible
businesses are prohibited
from share buybacks,
paying dividends or making
capital contributions from
the date of the loan until 12
months after the direct loan is
repaid in full.
Third, the Act places restrictions
on fund recipients’
executive pay, including
limiting pay increases and
severance pay or other benefits
upon terminations.
Fourth, the issuance of a
loan or loan guarantee cannot
be made contingent upon
an air carrier’s or eligible
business’s implementation
of measures to enter into negotiations
with the certified
bargaining representative or
class of employees of the air
carrier or eligible business
regarding pay or other terms
and conditions of employment.
Fifth, all eligible businesses
participating in the
program must also maintain
employment levels at the levels
in place as of March 24,
2020, to the extent practicable,
and are prohibited from
reducing their employment
levels by more than 10% from
that date until September 30,
2020.
Sixth, eligible businesses
participating in the program
must be created or organized
in the U.S. or under the laws of
the U.S. and have significant
operations in and a majority
of its employees based in the
U.S.
Seventh, eligible business
participating in the program
must have incurred or is expected
to incur covered losses
such that the continued operations
of the business are jeopardized,
as determined by the
Treasury.
CARES ACT is not a government
giveaway to big
business. Worker and small
business are safeguarded
and offered relief
Small Business
Relief SBA Section
7(a) Loans, “PPP”
To the extent entities are
unable to take advantage of
aviation industry loans and
loan guarantees, entities may
be able to obtain relief from
the Small Business Administration’s
(“SBA”) Section
7(a) loan program, called the
Paycheck Protection Program
(the “PPP”). The Act
provides for $349 billion for
guaranteed, low-interest, nofee
loans, with repayment deferred
for at least six months.
Significantly, the PPP permits
loan forgiveness up to 100%
of the loan principal amount,
subject to maintaining employment
and compensation
level requirements.
Members of the general
aviation community, Part 135
charter operators, Part 145
repair stations, including elements
of the supply chain,
may be eligible for the PPP
in the form if they unable or
unwilling to participate with
the loan or loan guarantees
noted above. Section 7(a) loans
will be provided through approved
SBA banks and nonbank
lenders. The covered
period of the program is February
15, 2020 to June 30, 2020.
The maximum loan amount is
the lesser of (i) the average total
monthly payments by the
recipient for payroll costs incurred
during the one-year period
before the date on which
the loan is made multiplied by
2.5; or (ii) $10 million.
Allowable uses of the PPP
loans include payments by recipients
of payroll, health care
benefits, mortgage interest
payments, rent, utilities and
interest on any other debt obligations
that were incurred before
the covered period. Recipients
applying for a PPP loan
will also be required to make
a good-faith certification as
follows:
-that the uncertainty of
current economic conditions
makes necessary the loan request
to support the ongoing
operations of the eligible recipient;
-acknowledging that funds
will be used to retain workers
and maintain payroll or make
mortgage payments, lease payments
and utility payments;
-that the recipient does
not have an application pending
for another PPP loan for
the same purpose and duplicative
of amounts applied for
or received under a PPP loan;
and
-during the period from
February 15, 2020 to December
31, 2020, that the recipient has
not received amounts under
the PPP for the same purpose
and duplicative of amounts applied
for or received under a
PPP loan.
Federal Excise Tax
Relief
Act also contains additional
tax policy changes
likely to benefit smaller companies
such as the delay of
payments for employer payroll
taxes, net operating loss
limitations and carrybacks,
and the delay of estimated corporate
tax payments until October
15, 2020.
Finally, the Act provides
for federal excise tax relief
for certain air transportation
taxes, including the following:
-suspension of air transportation
excise taxes (i.e.,
7.5% tax on amounts paid for
air transportation and applicable
segment fees), applicable
to Part 135 operators and
other types of operations subject
to the tax; and a similar
suspension of the $.043/gallon
tax on jet fuel used in commercial
operations.
Each of the foregoing excise
tax relief measures would
apply from the date of the Act’s
enactment through January 1,
2021.
WFS employee Clive Anthony happy
about CARES worker relief.