SIGPR-A-22-003-2 — Independent Review: American Airlines Validation Memo (March 2022)

Record facts

Summary

Report Number SIGPR-A-22-003-2, dated March 29, 2022, from the Special Inspector General for Pandemic Recovery's Assistant Inspector General for Auditing to Treasury Chief Recovery Officer Jacob D. Leibenluft, reviewing Treasury's Validation Memo for American Airlines, Inc. The report states American applied on April 18, 2020 for a $6 billion loan under Section 4003 of the CARES Act, was allocated $4.749 billion, and had its allocation increased by $728 million to $5.477 billion in September 2020, making it a Tier 1 borrower. SIGPR states it is not aware of any material modifications needed to the Validation Memo. It identifies one discrepancy it considered inconsequential, concerning the reviewer's answer on other CARES Act loan applications. Appendices set out the objective, scope and methodology and the report distribution.

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SIGPR-A-22-003-2 
  
 
 
 
 
Independent Review of 4003(b) Loan Recipient’s  
Validation Memo – American Airlines, Inc.   
 
Report Number: SIGPR-A-22-003-2 
March 29, 2022 
 
 
 
 

 
SIGPR-A-22-003-2 
i 
  
March 29, 2022 
 
TO: 
Jacob D. Leibenluft   
Chief Recovery Officer 
U.S. Department of the Treasury 
FROM: 
Theodore R. Stehney 
Assistant Inspector General for Auditing 
Special Inspector General for Pandemic Recovery (SIGPR) 
SUBJECT: 
Independent Review of 4003(b) Loan Recipient’s  
Validation Memo – American Airlines, Inc.   
 
This report presents the results of our review of the Validation Memo associated with 
American Airlines, Inc.’s (American) application submission to the Department of 
Treasury (Treasury). American received a $5.477 billion loan under Section 4003, 
Division A, Title IV, Subtitle A of the Coronavirus Aid, Relief, and Economic Security Act 
of 2020 (the “CARES Act”).  
On April 18, 2020, American applied for a loan under Application Number LA-
2004160279. All applicants had to provide specific documentation along with their 
applications to be further considered to receive a loan, as outlined in Treasury’s 
Underwriting Guide. Treasury completed a Validation Memo once it received and 
reviewed an applicant’s document submissions. Once the Validation Memo was 
completed, Treasury forwarded the application to the next level of the underwriting 
process.   
Based on our review, we are not aware of any material modifications that should be 
made to the Validation Memo that Treasury completed for American to comply with 
Treasury’s Underwriting Guide.   
Please address questions regarding this report to Michael Sinclair at (202) 923-8021 or 
Michael.Sinclair@sigpr.gov. 
 
 

 
SIGPR-A-22-003-2  
1 
  
Introduction  
Section 4003 of the CARES Act authorizes the Treasury to make loans, loan 
guarantees, and other investments to provide liquidity to eligible businesses related to 
losses incurred as a result of the coronavirus pandemic. Sections 4003(b)(1)-(3) 
appropriated $46 billion to help stabilize the airline industry and businesses critical to 
maintaining national security.   
The breakdown of available funding was as follows: 
1. Up to $25 billion for passenger air carriers; businesses certified to perform 
inspection, repair, replace or overhaul services; and ticket agents; 
2. Up to $4 billion for cargo air carriers; and 
3. Up to $17 billion for businesses critical to maintaining national security.    
Section 4003 loans were further categorized by the loan amount requested. The Air 
Carrier Loan Program is categorized into tiers as follows: Tier 1 loans were above 
$300 million, Tier 2 loans were between $20 million and $300 million, and Tier 3 
loans were under $20 million.   
 
Background 
On April 18, 2020, American applied for a for $6 billion loan under Section 4003 of 
the CARES Act and was originally allocated $4.749 billion of the requested amount. 
As a result of additional CARES Act funding availability, Treasury increased 
American’s allocation by $728 million to $5.477 billion in September 2020. Based 
on its loan amount, American is classified as a Tier 1 borrower.  
During the application period, applicants were required to provide multiple 
documents, as identified in the Underwriting Guide. For each applicant to move 
forward in the loan process, they had to provide financial statements, a financial 
plan, and certain IRS forms, among other documentation. Depending on the 
applicant’s type of business additional documentation was also required. For 
instance, air carriers had to provide their Department of Transportation certification 
as such under Section 40102(a) of Title 49, United States Code. All documentation 
provided was to be maintained by Treasury.   
Once the required documentation was compiled, Treasury verified and recorded it 
using a Validation Memo.  A completed and signed Validation Memo allowed the 
applicant to move forward to the loan underwriting process.   
  
 
 
 

 
SIGPR-A-22-003-2  
2 
  
Results in Brief 
Based on our review, we are not aware of any material modifications that should be 
made to the Validation Memo Treasury completed for American to comply with 
Treasury’s Underwriting Guide. However, we identified one discrepancy in the 
completion of the Validation Memo that we considered inconsequential. For your 
information, the discrepancy is: 
• The Reviewer responded “NO” in response to the question, “Did the Borrower 
receive or apply for, or does the Borrower expect to apply for, loans provided or 
guaranteed pursuant to other programs under the CARES Act?” However, 
American’s application in Salesforce indicates “yes,” and the reviewer recorded a 
PSA number in the following field, “Has an application for this EIN been 
submitted for Payroll Support?” 
 
Compliance Statement 
We conducted our review in accordance with generally accepted government auditing 
standards for attestation engagements. Those standards require that we plan and perform 
the review to obtain limited assurance that the Validation Memo is fairly presented in all 
material respects and completed according to Treasury’s Underwriting Guide. A review is 
substantially less in scope than an examination, the objective of which is to obtain 
reasonable assurance and express an opinion on the subject matter. Accordingly, we do 
not express such an opinion. We believe that our review provides a reasonable basis for 
our conclusion.   
 
Audit Team 
This review was conducted the individuals listed below: 
Michael Sinclair 
Audit Manager   
Renata Malionek 
Management Analyst 
 
 

 
SIGPR-A-22-003-2 
A-1 
 
Appendix A – Objective, Scope and Methodology 
 
We have reviewed American Airlines Inc.’s submission of loan documents under 
Application Number LA-2004160279. Treasury was responsible for obtaining 
American’s loan documentation and completing the Validation Memo in accordance with 
its Underwriting Guide prior to moving the application further in the loan process. Our 
responsibility is to express a conclusion about whether any material modification should 
be made to the Validation Memo for it to be in accordance with Treasury’s Underwriting 
Guide and be fairly stated.  
The objective of this review is to evaluate whether Treasury’s Validation Memo for 
American was completed according to Treasury’s Underwriting Guide and other 
applicable criteria, and fairly presents the supporting documentation provided by 
American in all material respects. Treasury’s efforts culminated in the completion of the 
Validation Memo. Additionally, this review is an offshoot of the overall examination of 
the 4003(b) loan program.  
We primarily performed this review remotely due to the ongoing telework situation 
dictated by the pandemic. We therefore relied on mostly electronic records for our 
review.  
To accomplish the review objective, our fieldwork included, but was not limited to, the 
following procedures: 
• Reviewed Treasury’s Underwriting Guide and determined the documents 
required by all applicants;  
• Reviewed American’s Validation Memo for completeness and accuracy; 
• Determined if the document submissions were complete and accurate;  
• Requested additional documentation from Treasury officials when needed; and 
• Held discussions with Treasury officials when applicable.  
The review was conducted in accordance with generally accepted government auditing 
standards for attestation engagements.  
 
 

 
SIGPR-A-22-003-2 
B-1 
 
Appendix B – Report Distribution 
 
Chief Recovery Officer – U.S. Department of the Treasury  
Office of General Counsel – U.S. Department of the Treasury  
Inspector General – Special Inspector General for Pandemic Recovery 
Asst. Inspector General for Auditing – Special Inspector General for Pandemic 
Recovery 
Office of General Counsel – Special Inspector General for Pandemic Recovery

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