US Treasury Changes Conditions for Aviation Industry Support... Airlines Say "Not Helpful"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] The aviation industry, which has been hit hard by the novel coronavirus disease (COVID-19), is facing difficulties in negotiations as it opposes the U.S. Treasury Department's subsidy payment plan. The Treasury Department's decision to convert part of the subsidy into loans has led the aviation industry to counter that they would rather not receive the subsidies at all.

According to major foreign media on the 13th (local time), out of the $2 trillion stimulus package approved by the U.S. Congress, $25 billion (approximately 30.3 trillion KRW) was allocated to the aviation industry, but U.S. Treasury Secretary Steven Mnuchin changed some of the conditions. The revised conditions include converting 30% of the $25 billion into low-interest loans that must be repaid within five years, and receiving 10% of the low-interest loan amount in the form of equity-linked securities.

This means that for every $1 billion a private airline receives, $300 million would be a low-interest loan, and $30 million would be received as equity.

The aviation industry immediately protested, citing that with global air routes closed and the industry severely impacted, they do not have the capacity to repay loans.

Airlines for America, representing major U.S. carriers such as Delta, United, American, and Southwest Airlines, stated, "Subsidy support is effective only when used solely to help employees without any other conditions."

Additionally, Sara Nelson, president of the Association of Flight Attendants-CWA, said, "The Treasury Department's decision does not help the aviation industry's rescue at all," and warned, "Despite the support measures, it will trigger airline bankruptcies."

Analysts interpret the government's response as a move mindful of the significant public criticism that arose when the government provided massive bailouts to banks and the auto industry during the 2008 financial crisis.

Accordingly, major foreign media reported that the aviation industry might refuse government support. Although airlines agreed not to cut wages or lay off employees until September in exchange for subsidies, the reduction in subsidy amounts has led them to conclude that it might be better to proceed with layoffs instead.