CARES Act Payroll Support to Air Carriers and Contractors

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 bil ion in payroll support to aviation workers. From this
amount, the Secretary of the Treasury was authorized to provide up to
 $25 bil ion 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 bil ion 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 bil ion 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 bil ion 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
1st Agreement Date
04/20/2020
05/08/2020
05/15/2020
N/A
Number of Recipients
352
38
220
610
PSP Amount
$24,960,745,211
$826,478,739
$2,411,868,310
$28,199,092,260
Source: CRS analysis of U.S. Treasury CARES Act Payrol 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, fol owed 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 bil ion appropriated for payroll
support to passenger airlines was committed, compared with approximately 80% of the $3 bil ion for
contractors and over 20% of the $4 bil ion 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 real ocating 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 wil need to restructure for
survival and long-term growth.

Author Information

Rachel Y. Tang

Analyst in Transportation and Industry

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