CARES Act Payroll Support to Air Carriers and Contractors — IN11482 (August 13, 2020)

Summary

This Congressional Research Service Insight of August 13, 2020, by Rachel Y. Tang, covers the payroll support program (PSP) for air carriers and contractors under the CARES Act (P.L. 116-136). Section 4112 provided $32 billion: up to $25 billion for passenger air carriers, $4 billion for cargo air carriers and $3 billion for contractors, to be used exclusively for employee wages, salaries and benefits, with no involuntary layoffs or furloughs until September 30, 2020. Treasury data as of July 31, 2020 show $27,177,860,097 approved for 577 recipients: 335 passenger airlines, 34 cargo airlines and 208 contractors. By the end of July nearly 97% of the passenger airline amount was committed, compared with over 75% for contractors and about 17% for cargo carriers. The Insight notes that U.S. airline passengers in April 2020 were 96% lower than in the same month in 2019.

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INSIGHTi

CARES Act Payroll Support to Air Carriers
and Contractors

August 13, 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
 $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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IN11482

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Administered by the U.S. Treasury, PSP has generated considerable interest from airlines and contractors.
Treasury data show that, by the end of July 2020, more than $27 billion in payroll support had been
approved for disbursement to 577 recipients, including 335 passenger airlines, 34 cargo carriers, and 208
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 July 31, 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 335 34 208 577
PSP Amount $24,242,235,606 $660,050,566 $2,275,573,925 $27,177,860,097

Source: CRS analysis of U.S. Treasury CARES Act Payroll Support Program data (as viewed on August 13, 2020).

Treasury data indicate that the first group of agreements was reached with a number of passenger airlines
on April 20, 2020, and over 75% 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, by the end of July, nearly 97% of the $25 billion appropriated for payroll
support to passenger airlines was committed, compared with over 75% of the $3 billion for contractors,
and about 17% 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 have begun to
offer voluntary separation packages. Airlines also have warned more than 75,000 employees about
possible furloughs in October. Labor groups representing aviation unions have been advocating for more
federal aid.
However, September 30, 2020, is not the date that the payroll support benefit expires. There is no
deadline for a recipient to expend payroll support funds, as long as they are 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, and July, many recipients
(employers) are likely to have funds available for payroll support beyond September 30, 2020.
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 early August 2020 remains at
over 70% 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

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