Alaska_Airlines (Horizon_Air) Bombardier Dash 8-Q402. Photo: Fabrizio Gandolfo

MIAMI – As the US Treasury Department approves US$25bn in grants and loans, Alaska Airlines (AS) and its sister airline Horizon Air (QX) agree to receive US$992m under the CARES Act.

Out of the total amount of the Payroll Support Program (PSP), the group will receive US$267m in loans to be repaid in 847,000 non-voting shares at US$31,61 each as established in the general terms of the agreement, said the airlines in a joint statement.

Commitment conditions

The aid will bring immediate and sorely needed liquidity to the airline industry and will enable all airlines to mantain services and jobs, said Alaska Air Group’s Chairman and CEO, Brad Tilden.

“We are grateful for and humbled by this support… 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,” added Tilden.

According to the statement, the funding is expected to cover 70% of budgeted costs throughout September 2020, based on similar costs reported for the same period in 2019.

Accepting this help, AS and QX also agreed to no involuntary furloughs or rate pay changes until September and maintanance of service under the Department of Transportation (DOT) rule.

Further conditions include that the companies continue the suspension of dividends and share repurchases until 2021 and limit executive compensation through March 24, 2022.

Future loan for the airline group

Both airlines communicated to the Treasury Department their intention to apply for US$1,128b loans, too, in a separate program under the CARES Act. Even though the amount has not been negotiated yet, AS and QX announced that the funds received will be allocated on short-term liquidity needs and must be fully paid back.

To be eligible, the group has to maintain the DOT minimum service rule. According to the Bureau of Transportation Statistics, the Washington-based carrier has just 10% of the market share.

As a result, it needs to service a city destination of five times a week with three flights and to those with less than five weekly flights with just one service. AS currently exceeds the latter terms, although it canceled 200 arrivals and departures per day at the end of March.