Government Profits as American and Sun Country Repay CARES Act Loans

Flush with cash and optimistic for the future, U.S. airlines have begun paying back some of the loans they received from the federal government through the CARES Act during the depths of the Covid-19 crisis.

American Airlines went first with a rare debt prepayment press release declaring its $550 million CARES Act loan repaid on March 24. Sun Country Airlines followed a day later announcing the prepayment of its own $45 million loan.

“This prepayment is a shining example of the importance of the CARES Act,” American CEO Doug Parker said in a statement. “This important legislation … stabilized our industry and kept our workforce intact.”

But the U.S. Treasury Department did not just get taxpayers’ money back from American and Sun Country. A new analysis from Cowen & Co. shows the government made a roughly 21 percent annualized return on its loan and warrants to American — beating most major stock indices in returns over the past year.

American paid the Treasury Department $10.8 million in interest on the loan, according to Cowen. However, the balance is paper returns that assume the government exercised its warrants in the airline and sold the stock at market prices on March 30 — something it did not do. Selling the equity stake then would have netted the Treasury another $106 million in proceeds.

Considering the billions of dollars in additional warrants and loans made under the CARES Act and subsequent federal payroll assistance, U.S. taxpayers stand to make out well from these programs. Congress has allocated $79 billion for airlines to date, some of which was distributed as grants that do not have to be repaid. In addition, not all of the funds available as loans have been drawn.

This is not the first time the federal government has profited on airline relief. After 9/11, $10 billion in loan guarantees made by the Air Transport Stabilization Board netted the Treasury a roughly $300 million profit.

Alaska Airlines, JetBlue Airways, Mesa Airlines, SkyWest Airlines and United Airlines have not said when they plan to repay the just over $1.02 billion they have borrowed under the CARES Act. Every major U.S. carrier received separate payroll assistance with many giving the government warrants in return.

More prepayments may happen soon though with the industry optimistic for summer leisure travel. At a ceremony to mark the airline’s membership in Oneworld on Wednesday, Alaska CEO Ben Minicucci said the carrier stopped burning cash in March and and leisure bookings into the summer were strong.

Also on Wednesday, United CEO Scott Kirby told the U.S. Chamber of Commerce that leisure demand was “almost entirely recovered” to pre-crisis levels. Business demand, however, remained down 80 percent.

“As more Americans receive their vaccines, we expect they will feel more comfortable traveling, and are likely to travel more often during the remainder of the year,” wrote Cowen analyst Helane Becker in the report. She added that they expect U.S. airlines will see “strong domestic traffic” through the summer.

Airlines are already adding flights for the summer even though schedules remain in flux. These include American’s expansion in Austin, Southwest Airlines’ plan to add at least seven new cities — including Houston Bush Intercontinental, Myrtle Beach and Santa Barbara — to its map by June, and United’s addition of 26 new point-to-point routes to beach destinations on the Gulf of Mexico and Atlantic coasts.

— Additional reporting by Madhu Unnikrishnan