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Airline Stimulus Package Explained: What it means for U.S. Airline Workers

CARE ACT for the Airline Industry

The Airline Stimulus Package has been approved, but many airline workers are requesting to have the airline portion of the gigantic $2 Trillion coronavirus stimulus package (CARE ACT) explained.

The signing of the coronavirus bill (the coronavirus stimulus package CARE ACT). CBSN/YouTube.

Here is an explanation of the Airline Stimulus Package and how it protects airline workers:

The coronavirus stimulus package has saved the jobs for many airline workers, for now. The U.S. airline and cargo carriers employ some 750,000 airline workers on the ground and in the air.

However, the jobs-saving measures of the airline stimulus package are measures only based on a short-lived coronavirus crisis!

CARES ACT Becomes Law

Following extensive House and Senate negotiations, Congress has passed the Coronavirus Aid, Recovery, and Economic Security (CARES) Act. It was signed into law by the President on March 27, 2020.

There are many elements in the $2 Trillion package. However, airline unions such as ALPA (Air Line Pilots Association) have focused solely on the sections addressing financial relief for airlines and protections for its pilots and front-line aviation workers.

The final bill includes both grants and loans. The relief package provides $32B in direct grants to the airline industry; $25B is allocated for passenger airlines, $4B for cargo airlines, and $3B for contractors.

The law also authorizes the Secretary of the Treasury to make loans and loan guarantees of up to $25B for passenger carriers and $4B for cargo carriers.

The law prevents the federal government from conditioning any grants or loans on renegotiating collective bargaining agreements to reduce employee pay or benefits.

For grants, this protection from federal government demands for labor concessions is in effect until September 30, 2020.

For loans, this protection is in effect until one year after the loan is paid.

Comparison to 9-11

The provisions are a significant victory for labor and are in stark contrast to the situation post 9-11 when the government demanded that carriers seek labor concessions as a condition for getting aid.

The provision does not, however, prevent management from approaching unions for concessions, or from filing for bankruptcy protection. It only prevents the government from demanding that carriers that receive assistance secure contractual relief from their unions.

CARE ACT airline details

airline stimulus package explained, care act airlines
Pilots along with their fellow airline workers are all worried about careers and a future that could require years of recovery after the coronavirus crisis is over. Photo: Unsplash.

Grants

  • The law mandates that grants shall be used exclusively for salaries and benefits for workers.
  • The amount of aid for each carrier will be based on the amount paid to employees during the period from April 1, 2019, to September 30, 2019.
  • Grant recipients are prohibited from making stock buybacks or paying dividends until September 30, 2021.
  • Airlines that receive grant funding cannot conduct involuntary furloughs or reduce pay rates and benefits until September 30, 2020.

Terms of Grants on Executive Compensation and stocks

Limits on Executive Compensation (Salary, bonuses, stock awards, and other financial benefits) expires on March 24, 2022, for accepting a grant:

  • Any officer/employee, (except those covered by a CBA) making more than 425K (total compensation) in 2019 will have total compensation frozen.
  • Any officer/employee (except those covered by a CBA) making in excess of 3M (total compensation) in 2019, will have total compensation frozen at 3M + 50% of the amount exceeding 3M.
  • US Secretary-Treasurer cannot waive compensation limits.
  • US Secretary-Treasurer MAY receive warrants, options, preferred stock, debt securities, notes, or other financial instruments from carrier (this is different than for loans).
  • The US Department Of Transportation Secretary may require (“to the extent reasonable and practicable”) continuation of service to any point served by the carrier prior to March 1, 2020, be continued through March 1, 2022.

Loans

$25B for passenger airlines, $4B for cargo carriers, subject to following conditions:

  • Until September 30, 2020: Must maintain employment levels “to the extent practicable” (in any case no more than 10% reduction). For loans, air carriers must maintain their employment levels as of March 24, 2020 “to the extent practicable” and cannot reduce their employment levels by more than 10 percent, until September 30, 2020.

The following terms apply until 1 year after loan repayment:

  • No stock buybacks/dividends (Secretary-Treasurer may waive this if in interests of Federal Government but must justify this to Congress).
  • Sets limits on executive compensation and severance packages until March 24, 2022, for grants, and/or 12 months after loan repayment.

Additional Loan Terms

  • Treasurer-Secretary MUST receive a warrant, equity interest or senior debt instrument (no voting power).
  • Loan duration – max 5 years.
  • The loan principal can’t be reduced through loan forgiveness.
  • DOT Secretary may require (“to the extent reasonable and practicable”) continuation of service to any point served by the carrier prior to March 1, 2020, be continued through March 1, 2022 (same as grants).

Collective Bargaining Agreement (CBA) Protections (Unionized airlines)

The law prevents the federal government from conditioning any grants or loans on renegotiating collective bargaining agreements to reduce employee pay or benefits.

For grants, this protection from federal government demands for labor concessions is in effect until September 30, 2020.

For loans, this protection is in effect until one year after the loan is paid.

airline stimulus package explained, airline workers
No airline and no government aid plan can sustain the lack of passengers and loss of revenue experienced during the coronavirus crisis. Photo: Unsplash.

Taxes

  • Federal Excise tax and Kerosene tax will not be imposed through January 1, 2021.

Retirement

Special Rules for the use of retirement plans (Sec 2202):

  • Waiver of 10% penalty on early distributions from retirement plans.  
  • The bill waives the 10% early distribution penalty tax for coronavirus related distributions of up to $100,000.
  • Distribution is included in income for over three years.
  • Participants may repay distribution or contribute to another plan as a “trust-to-trust” transfer, within 3 years of the distribution. 
  • Liberalization of 401(k) plan loan rules.
  • Increases the dollar limit on plan loans from $50,000 to $100,000 and the percentage limit from 50% to 100% of the present value of the participant’s account for loans made within 180 days of enactment.  
  • The repayment of outstanding plan loans that occurred from the date of enactment through December 31, 2020, is delayed one year.  The requirement to repay loans within 5 years is disregarded for these loans.

Temporary Waiver of Required Minimum Distribution Rules

Required minimum distributions of certain retirement plans and accounts are waived for the 2020 calendar year for defined contribution plans and IRAs (Section 2203).

Single-Employer Funding Rules

(Section 3608)

  • ERISA-required minimum funding for defined benefit plans due during 2020, including quarterly contributions, is delayed until January 1, 2020, at which time the amount due will be increased for interest.
  • Sponsors of defined benefit plans may elect to treat the plan’s adjusted funding target attainment percentage (AFTAP) for the 2019 plan year as the AFTAP for the 2020 plan year.

Airline Specific References from the CARE ACT

Definitions: Sec 4002, p.510
Loans: Sec 4003, p.512
Grants: Sec 4112, p.589
CBA Protections: Sec 4025, p.578 and 4115, p.594

What do you think about the Airline Stimulus Package an how it (temporarily) protects airline workers? Please send your comments here.

Featured Image: Unsplash

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