Leading House Democrats criticized the conditions the U.S. Treasury Department has proposed for providing emergency payroll-assistance grants to airlines, joining a growing backlash by industry and union groups.

Speaker Nancy Pelosi and Representative Peter DeFazio, chairman of the House Transportation and Infrastructure Committee, said Wednesday that any demand for airline equity stakes in exchange for the US$25 billion in grants designed to save jobs are onerous and could prompt carriers to decline the help. The industry faces steep declines in travel due to the COVID-19 pandemic.

The Treasury on Monday released guidelines for how airlines could apply for grants and loans, but stopped short of saying what the minimum stakes would be. It said airlines will be required to propose up-front how the government could retain stakes in their companies, possibly with stock, options or warrants.

“We do want them to honor what our conversation was” during negotiations on the US$2 trillion bill signed into law last week, Pelosi said at a press conference.

The grants were intended to save jobs, she said. “It goes to the airlines and then quickly to the employee,” she said. “We were very proud of that. We just don’t want to hold that up.”

‘Poison Pill’

The two lawmakers echoed comments from a regional airlines trade group and flight-attendant unions. If the government requires airlines to give up large equity stakes, it would amount to “a poison pill” that will lead to job losses, three unions said in a letter to Treasury Secretary Steven Mnuchin.

Pelosi and DeFazio agreed there should be strict conditions on the separate US$25 billion in loans authorized in the legislation for passenger carriers, such as putting up collateral or giving the government a financial interest in companies. But the grants were designed to cover airline payrolls through September and shouldn’t face such restrictions.

The stimulus package included provisions for grants of US$25 billion to passenger carriers, US$4 billion for air-cargo haulers and US$3 billion for contractors such as meal providers. They were designed to limit layoffs, and businesses that accepted them had to agree not to cut pay or trim staff through September. The Treasury was authorized to receive “financial instruments” such as equity in exchange.

‘I’ve been very clear, this is not an airline bailout, OK, and that the taxpayers need to be compensated for relief they’re giving to airlines,” Mnuchin said Monday in a Fox Business interview.

A separate pool of US$29 billion, including US$4 billion for cargo carriers, was set aside for loans.

Service Conditions

The Transportation Department on Tuesday proposed requiring airlines that take government aid continue basic levels of service, but the framework allows for significant cuts in flights.

“We aren’t asking small businesses for warrants,” DeFazio said, comparing conditions being imposed on airlines to those by the Small Business Administration. “We’re not going to own a part of every small business in America.”

The Oregon lawmaker said he looked at the market capitalization of one major carrier and said the government would end up owning a 54 per cent share if it takes warrants equal to its payroll through September.

“I don’t think the airline will pay their people under those conditions,” DeFazio said.

The large carriers’ trade group, Airlines for America, had no immediate comment on the issue Wednesday but noted its March 27 statement calling for the government to release the rescue funds “with as few restrictions as possible.”

The Treasury Department didn’t immediately respond to a request for comment. In an interview on CNBC earlier Wednesday, Mnuchin said he is trying to get the aid out as quickly as he can.

“These are going to be optional programs -- we’re not forcing airlines to do these deals,” he said. “We’ll make these available to the airlines, if they want to take them, they’ll take them.”

Three unions representing about 94,000 flight attendants said in the letter sent Wednesday that if airlines had to pay back the entire US$25 billion with an equity position, it would give the government the equivalent of a 40 per cent stake in their businesses.

“This effectively renders the payroll grants a poison pill that will cost us our jobs and push us onto taxpayer-funded unemployment insurance -- the opposite of what this bipartisan agreement intended,” the unions said in the letter.

The Regional Airline Association, which represents smaller carriers such as SkyWest Inc. and Air Wisconsin Inc., argued in a letter to Mnuchin and Transportation Secretary Elaine Chao that its members also need access to the federal grants and many can’t offer the government stock warrants, notes or other forms of an equity stake.

“Since most regional airlines do not have the ability to take on debt, access capital markets, or issue warrants or equity, any condition to do so would render these carriers unable to obtain assistance and force these carriers to immediately furlough tens of thousands of aviation employees,” RAA President and Chief Executive Faye Malarkey Black wrote March 30.