CARES Act Payroll Support to Air Carriers and Contractors

INSIGHTi

CARES Act Payroll Support to Air Carriers

and Contractors

Updated October 22, 2020

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136), signed into law on

March 27, 2020, provided assistance to consumers and businesses, including aid to air carriers and

eligible contractors. Emergency funds also were provided to eligible airports. Assistance to air carriers in

Division A, Title IV of the CARES Act included loans and loan guarantees, funds to support the pay and

benefits of air carrier workers, and a suspension of aviation excise taxes on air transport of people, cargo,

and aviation fuel through calendar year 2020. This Insight focuses on the payroll support program (PSP).

Section 4112 of the CARES Act provided $32 billion in payroll support to aviation workers. From this

amount, the Secretary of the Treasury was authorized to provide up to

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$25 billion for passenger air carriers (any air carrier that, during the period from April 1,

2019, to September 30, 2020, derived more than 50% of its air transportation revenue

from the transportation of passengers);

$4 billion for cargo air carriers (any air carrier that, during the period from April 1, 2019,

to September 30, 2020, derived more than 50% of its air transportation revenue from the

transportation of property or mail, or both); and

$3 billion for contractors who provide ground services directly to air carriers, such as

catering services or on-airport functions.

The law specified that the amount received by each air carrier or contractor was to be based on its payroll

expenses for the six-month period from April through September 2019, and that the payroll support funds

must be used exclusively for continuing the payment of employee wages, salaries, and benefits. The law

also required that air carriers or contractors receiving payroll support must refrain from conducting

involuntary layoffs or furloughs or reducing pay rates and benefits from the day the payroll support

agreement was executed until September 30, 2020.

According to the CARES Act, air carriers and contractors receiving payroll support also must comply

with other program terms and conditions, including continuation of certain air service deemed necessary

by the Secretary of Transportation, refraining from stock buybacks or dividend payments through

September 30, 2021, and limiting the compensation of highly paid employees until March 24, 2022.

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Administered by the U.S. Treasury, PSP has generated considerable interest from airlines and contractors.

Treasury data show that, by October 5, 2020, more than $28 billion in payroll support had been approved

for disbursement to 610 recipients, including 352 passenger airlines (some operating unscheduled

service), 38 cargo carriers, and 220 contractors.

Although Treasury set April 27, 2020, as the deadline for PSP applications, it agreed to accept and

consider applications beyond the deadline, subject to the availability of funds. Program data indicate that

Treasury accepted and approved applications in the months after the original deadline, as shown in Table

1.

Table 1. CARES Act Payroll Support Program (PSP)

(As of October 5, 2020)

Passenger Airlines

Cargo Airlines

Contractors

Total

1 st Agreement Date

04/20/2020

05/08/2020

05/15/2020

N/A

Number of Recipients

352

38

220

610

$24,960,745,211

$826,478,739

$2,411,868,310

$28,199,092,260

PSP Amount

Source: CRS analysis of U.S. Treasury CARES Act Payroll Support Program data (as viewed on October 21, 2020).

Treasury data indicate that the first group of agreements was reached with a number of passenger airlines

on April 20, 2020, and about 72% of the passenger airlines payroll agreements occurred in April and May.

The first batch of agreements with cargo airlines was reached on May 8, 2020, followed by contractors in

mid-May (Table 1). Contractors’ payroll support agreements were disbursed relatively evenly in May,

June, and July. The timing of PSP agreements suggests that passenger airlines were the first group

affected by the abrupt drop in air travel as a result of the COVID pandemic, followed by aviation

contractors downstream. Air cargo carriers have been less affected.

The data also indicate that, as of October 5, 2020, over 99% of the $25 billion appropriated for payroll

support to passenger airlines was committed, compared with approximately 80% of the $3 billion for

contractors and over 20% of the $4 billion for cargo carriers. This also appears to agree with reports that

cargo carriers have been faring better than passenger airlines.

As one of the PSP requirements prohibits involuntary furloughs or pay-rate reductions through September

2020, many airlines have asked employees to voluntarily take a leave of absence and/or begun to offer

voluntary separation packages. Airlines also have warned employees about possible furloughs in October.

Airlines and union groups have been advocating for continued federal aid.

However, the payroll support benefit did not expire on September 30, 2020. There is no deadline for a

recipient to expend payroll support funds, as long as they are used exclusively for the continuation of

employee wages, salaries, and benefits, as stated in a Treasury document. Since many payroll support

agreements were approved and executed in May, June, July, or later, many employers are likely to have

had funds available for payroll support beyond September 30, 2020. Meanwhile, airlines have been

accessing additional capital in private markets and from Treasury’s loan and loan guarantees program.

PSP has helped airlines and contractors to temporarily avert mass layoffs and furloughs due to the

unprecedented drop in business. The number of passengers on U.S. airlines in April 2020 was 96% lower

than in the same month in 2019. The number of U.S. airline passengers in mid-October 2020 remains

about 65% lower than the 2019 level, and air travel is not expected to fully recover to pre-pandemic level

for years. Congress could consider augmenting, extending, or reallocating undistributed PSP funds to

passenger carriers that need more assistance. However, without immediate and significant improvement

in passenger traffic, airlines may not have sufficient business to sustain current employment levels even

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with short-term payroll assistance from the government. It is likely the airlines will need to restructure for

survival and long-term growth.

Author Information

Rachel Y. Tang

Analyst in Transportation and Industry

Disclaimer

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