Seyfarth Synopsis: After extensive negotiations, Wednesday night the Senate passed a massive COVID-19 relief package. This post provides the highlights of the bill’s impact on air carriers and railroads.
Late Wednesday night, the final version of the Coronavirus Aid, Relief and Economic Security Act, or the “CARES Act,” unanimously passed the Senate. The aviation and rail industries, both of which have incurred significant losses due to COVID-19, have been waiting anxiously to see the full extent of relief.
General Requirements For Mid-Size Business Loan Recipients
The bill contains special limitations that will apply to loan recipients that are eligible mid-size businesses with 500-10,000 employees. Eligibility rules include: (1) domiciled in the U.S. with significant operations in the U.S.; (2) not a debtor in a bankruptcy proceeding; (3) created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the U.S.
A significant requirement for these mid-size businesses is that they must “remain neutral in any union organizing effort for the term of the loan.” The prospect of a loan being conditioned on a neutrality agreement would require any non-union business to evaluate the costs and benefits of receiving assistance.
Additional limitations on eligible mid-size businesses include: (1) loan funds must be used to retain at least 90% of the recipient’s workforce with full compensation and benefits through September 30, 2020; (2) inability to pay dividends or buy back stock while the loan is outstanding except as required by preexisting contract; (3) restoration of the recipient’s workforce to its February 1, 2020 status including full compensation and benefits within four months of the state of emergency declaration being terminated; (4) inability to outsource or offshore jobs for the term of the loan plus two years; and (5) inability to abrogate existing CBAs for the term of the loan plus two years, among other limitations.
Direct Aid to Carriers and Contractors
The Senate bill allocates $32 billion in non-loans to continuation of payment of employee wages, salaries, and benefits for carriers and service providers, allocated as follows:
$25 billion to passenger air carriers;
$4 billion to cargo air carriers; and
$3 billion to contractors.
This payroll support--equal to the salary and benefits for the pay period from April 1, 2019 through September 30, 2019--is to be provided to carriers and contractors within 10 days of enactment.
‘‘Contractor’’ is defined in the Senate bill as:
(A) a person that performs, under contract with a passenger air carrier conducting operations under part 121 of title 14, Code of Federal Regulations—(i) catering functions; or (ii) functions on the property of an airport that are directly related to the air transportation of persons, property, or mail, including but not limited to the loading and unloading of property on aircraft; assistance to passengers under part 382 of title 14, Code of Federal Regulations; security; airport ticketing and check-in functions; ground-handling of aircraft; or air craft cleaning and sanitization functions and waste removal; or
(B) a subcontractor that performs such functions;
To be eligible for assistance, recipients must not conduct involuntary furloughs or reduce pay rates and benefits through September 30, 2020, and may not purchase an equity security in the carrier, contractor, or any parent company of the carrier or contractor, or pay any dividends through September 30, 2021.
Additionally, the Senate bill provides that “Neither the Secretary, nor any other actor, department, or agency of the Federal Government, shall condition the issuance of financial assistance under this subtitle on an air carrier’s or contractor’s implementation of measures to enter into negotiations with the certified bargaining representative of a craft or class of employees of the air carrier or contractor under the Railway Labor Act (45 U.S.C. 151 et seq.) or the National Labor Relations Act (29 U.S.C. 151 et seq.), regarding pay or other terms and conditions of employment.” This restriction on the federal government applies from the date of any assistance being provided through September 30, 2020.
Financial assistance recipients must agree to freeze total compensation for non-union employees whose total compensation exceeded $425,000 in 2019 and limit severance to twice 2019 compensation levels, with additional limitations on those employees that earned more than $3 million in total compensation in 2019.
Also, the Secretary of Transportation may require that air carriers and service providers receiving financial assistance maintain scheduled air transportation service deemed necessary.
The Secretary of Treasury will publish procedures within five days after the bill is enacted for air carriers and service providers to submit requests for financial assistance.
Grants-in-Aid for Airports
The Senate Bill also provides an additional $10 billion in aid directly to airport sponsors to prevent, prepare for, and respond to the coronavirus.
The Senate bill amends the Railroad Unemployment Insurance Act in order to make railroad unemployment benefits consistent with unemployment benefits for states. For example, the seven-day waiting period for benefits is temporarily eliminated until December 31, 2020. Furthermore, eligible employees will be provided an additional $600 per week payment for up to four months. Finally, unemployment benefits are extended for an additional 13 weeks through December 31, 2020.
Other parts of the bill provide additional funding to the Railroad Retirement Board, the agency that administers the Railroad Unemployment Insurance Act, the Federal Railroad Administration, and over $1 billion to the National Railroad Passenger Corporation (Amtrak) for operating assistance to cover revenue loss. Amtrak may engage in furloughs, but as a condition of the assistance, must provide these employees the opportunity to be restored to their previously held positions.
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The House is expected to pass this version of the bill and the President to sign it, but we will continued to keep you updated.