On March 27, 2020, the President signed into law the U.S. government’s Phase 3 aid package to provide relief due to the novel coronavirus (“COVID-19”) through the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act authorizes approximately $2 trillion in federal stimulus funds to combat the crisis. One key sector it seeks to support is infrastructure and transportation, including through aid programs related to airports and airlines, rail, highways, and mass transit.
Airports and Airlines
In order to help airports “prevent, prepare for, and respond to” COVID-19, the CARES Act will appropriate $10 billion for airport grants-in-aid.1 The majority of this appropriation ($7.4 billion) will be available for any purpose for which airport revenues may lawfully be used, with half of that amount allocated among all commercial service airports based on their respective percentage share of total 2018 enplanements and the other half allocated based on their respective percentage share of fiscal year 2018 total combined debt service and ratio of unrestricted reserves to their respective debt service. In addition, $2 billion will be available to be apportioned in accordance with the Airport Improvement Program and $500 million will be available to pay a federal share of the costs of making grants under the Further Consolidated Appropriations Act, 2020 (Public Act 116-94), with unused amounts to be distributed to airports in the manner described in the preceding sentence. The remaining $100 million will be reserved for general aviation airports.
Airports (other than nonhub or nonprimary airports) that receive this funding must continue to employ through December 31, 2020 at least 90% of individuals employed by the airport (after making adjustments for retirements and voluntary separations) as of the date of enactment of the CARES Act. This requirement may be waived if the Transportation Secretary determines that the airport is experiencing economic hardship as a direct result of the requirement or the requirement reduces aviation safety or security.
Air Carrier Loans
To assist with economic stabilization, the CARES Act provides $500 billion to the U.S. Treasury’s Exchange Stabilization fund to provide loans and other investments to distressed sectors of the U.S. economy.2 Of that amount, $25 billion is reserved for direct lending to passenger air carriers, eligible businesses that are certified under 15 C.F.R. Part 145 (related to aircraft maintenance and repair facilities) and approved to perform inspection repair, replace or overhaul services, and ticket agents; an additional $4 billion will be reserved for direct lending to air cargo carriers.3 Any such loans must comply with the following requirements:
- Other credit is not reasonably available at the time of the transaction;
- The intended obligation is prudently incurred by the applicant;
- The loan is sufficiently secured or is made at a rate that reflects the risk of the loan or loan guarantee and is, to the extent practicable, not less than an interest rate based on market conditions for comparable obligations prevalent prior to the outbreak of COVID-19;
- The duration of the loan is as short as practicable, not to exceed five years;
- The agreement must provide that neither the borrower nor any affiliate may engage in stock buybacks, unless contractually obligated to do so, or pay dividends until one year after the date the loan is no longer outstanding;
- Until September 30, 2020, the borrower must maintain its employment levels as of March 24, 2020, to the extent practicable, and may not reduce its employment levels by more than 10% from the levels on that date;
- The borrower certifies it is a U.S.-domiciled business and it has significant operations in and a majority of its employees based in the U.S.; and
- The borrower 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 Secretary.4
The Treasury Secretary will coordinate with the Transportation Secretary in making these loans, who in turn is authorized to require, to the extent reasonable and practicable, any air carrier receiving these loans to maintain scheduled air transportation service where the Transportation Secretary deems necessary.5
Businesses that receive such loans may not increase the compensation of any officer or employee whose total compensation exceeds $425,000 or offer such employees severance pay or benefits upon termination of employment that exceeds twice the maximum total annual compensation received by that employee until one year after the loan is no longer outstanding; employees that earned over $3 million in 2019 may not earn more than $3 million plus 50% of the amount their compensation exceeded $3 million in 2019. These loans will not be able to be reduced by loan forgiveness.6
Suspension of Aviation Excise Taxes
Beginning after the date of enactment and ending before January 1, 2021, the CARES Act institutes a tax holiday under which no excise taxes will be imposed for the transportation of persons, the transportation of property (cargo), and aviation fuel.
Air Carrier Worker Support
The CARES Act also includes financial assistance for air carrier workers.7 This includes $25 billion for passenger air carriers, $4 billion to cargo air carriers, and $3 billion to persons under contract with passenger carriers to perform catering functions or on-airport functions (such as loading or unloading aircraft), with all such assistance to be used exclusively for continuing the payment of employee wages, salaries, and benefits.8 If an air carrier reports salaries and benefits to the Department of Transportation under 14 C.F.R. 241 (which covers certain certified large air carriers), this assistance will be provided in the amount equal to those reported for the period from April 1, 2019 through September 30, 2019; for all other air carriers and for contractors, it will be provided in an amount the carrier or contractor certifies, using sworn financial statements or other similar data, as the amounts paid during that time period.9
To be eligible for assistance, an air carrier or contractor must agree to the following conditions:
- To refrain from conducting involuntary furloughs or reducing pay rates and benefits until September 30, 2020;
- To refrain from stock buybacks and dividends through September 30, 2021;
- To comply with CARES Act’s provisions to protect collective bargaining agreements, for a period lasting from the time financial assistance is issued and ending on September 30, 2020; and
- For the period from March 24, 2020 to March 24, 2022, to comply with compensation limits similar to those described above for airline loans.10
Additionally, the Transportation Secretary is authorized to require, to the extent practicable, that air carriers receiving this support continue services to any point served by that carrier before March 1, 2020, taking into consideration the air transportation needs of small and remote communities and the needs of healthcare and pharmaceutical supply chains.11
The CARES Act delegates to the Treasury Secretary the authority to set appropriate terms and conditions for this assistance, to be published no later than five days after the date of enactment, with a requirement to make initial payments to air carriers and contractors that submit requests not later than 10 days after the date of enactment.12 If it is determined that the aggregate amount of financial assistance requested exceeds the amount available, the Treasury Secretary will provide the available aid on a pro rata basis.13
To provide appropriate compensation to the government for this assistance, as determined by the Treasury Secretary solely, a provision was included authorizing the Treasury Secretary to receive warrants, options, stock, and other financial instruments from recipients, as deemed appropriate by the Treasury Secretary in its sole discretion.14
Essential Air Service
Finally, an appropriation for $56 million to the Essential Air Service and Rural Improvement Fund is included to help maintain air service to rural communities, which is necessary to offset the reduction in overflight fees that help fund that program.15
The CARES Act provides $1.018 billion of aid to Amtrak in Northeast Corridor Grants and National Network Grants. This aid, in part, provides relief to states for their share of the cost of state-supported routes: the CARES Act provides that states will not be required to pay more than 80% of the amount each paid respectively in 2019, and that not less than $239 million of the National Network Grant appropriation will be available for use in lieu of any increase in a state’s payment.16
The CARES Act allows the Transportation Secretary to waive or postpone requirements under various statutes and regulations related to highway safety programs where COVID-19 has had a substantial impact on the states’ or the Department of Transportation’s ability to carry out a grant, campaign, or program under such provisions or where the requirements of those provisions are having a substantial impact on the ability to address the COVID-19 crisis.17 This allows the Transportation Secretary to clarify that states can issue special permits for overweight vehicles and loads to aid in the transport of relief supplies.
Additionally, the CARES Act provides an appropriation to the Federal Transit Administration for $25 billion in Transit Infrastructure Grants. The Transportation Secretary will provide and apportion these funds as if they were public transportation formula grants. These funds are to be apportioned not later than seven days after the date of enactment using the fiscal year 2020 apportionment formulas for such grants. Among other things, these funds will be available for the operating expenses of transit agencies related to the response to the COVID-19 emergency, including the purchase of personal protective equipment and paying the administrative leave of operations personnel due to service reductions. The requirements of Chapter 53 of Title 49 of the U.S. Code (related to public transportation), including labor standards requirements, will generally apply to these grants, except that the federal share of costs shall be up to 100% at the option of the recipient.18