U.S. Treasury, Q&A: Payroll Support to Air Carriers and Contractors (Apr. 20, 2020)

Summary

A U.S. Treasury Q&A dated April 20, 2020, on the Payroll Support Program under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). It states that Part-145 certified repair station operators and ticket agents may apply as contractors if the program's eligibility requirements are met, and that air carriers and contractors in or contemplating bankruptcy may submit applications. The Q&A states that all Recipients must submit quarterly reports under paragraph 12 of the Agreement at least until the calendar quarter that begins after March 24, 2022. It also addresses audited financial statements, the paragraph 6 dividend prohibition through September 30, 2021, the paragraph 5 stock buyback prohibition, and states that there is no deadline for a Recipient to use Payroll Support for employee wages, salaries, and benefits.

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“U.S. Treasury, Q&A: Payroll Support to Air Carriers and Contractors (Apr. 20, 2020).” Original at home.treasury.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/u-s-treasury-q-a-payroll-support-to-air-carriers-and-contractors-apr-2-5662519732/, SHA-256 cbbb616efd5cb993a1331d0867bf6d30bcde1c96a205e31af24d5bbb52a47ee0.

Full text

Q&A: Payroll Support to Air Carriers and Contractors
April 20, 2020

Following are answers to FAQs regarding the Payroll Support Program under Division A, Title
IV, Subtitle B of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Applicants to the Payroll Support Program whose applications are approved by the Treasury
Department enter into a Payroll Support Program Agreement (Agreement), a form of which is
available here.

APPLICATIONS AND ELIGIBILITY

1. When can applicants expect to hear from the Treasury Department about applications
they have submitted?

The Treasury Department has received hundreds of Payroll Support Program applications
and is working to review all applications as quickly as possible. Some applications require
additional information before the Treasury Department’s review can be completed. The
Treasury Department will contact you directly if you are required to provide additional
information.

2. Are Part-145 certified repair station operators and ticket agents that are eligible for
loans under Division A, Title IV, Subtitle A of the CARES Act also eligible to apply for
the Payroll Support Program as contractors?

Yes, if they meet the eligibility requirements for the Payroll Support Program. Eligibility for
contractors under the Payroll Support Program will be determined without regard to
eligibility for loans under Division A, Title IV, Subtitle A of the CARES Act. A contractor
applicant for Payroll Support should consider whether it qualifies as an eligible “contractor”
under the Payroll Support Program. For purposes of the Payroll Support Program, an eligible
contractor must perform, under contract with a passenger air carrier, (a) catering functions, or
(b) functions on the property of an airport that are directly related to the air transportation of
persons, property, or mail, such as loading and unloading of property on aircraft; assistance
to passengers under 14 CFR part 382; security; airport ticketing and check-in functions;
ground-handling of aircraft; or aircraft cleaning and sanitization functions and waste
removal. A subcontractor that performs such functions is also eligible.

3. Can an air carrier or contractor apply for the Payroll Support Program if it is in
bankruptcy?

Air carriers and contractors currently in bankruptcy proceedings or contemplating bankruptcy
may submit applications for the Payroll Support Program. The Treasury Department will
consider these circumstances in connection with its review of each application.

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4. For cargo air carriers and contractors, what financial instruments will be required as
appropriate compensation to taxpayers?

The Treasury Department is considering this question and intends to issue further guidance.

PAYROLL SUPPORT PROGRAM AGREEMENT: REPORTING

5. When does the requirement to provide quarterly reports to Treasury under paragraph
12 of the Agreement expire?

Recipients of Payroll Support (Recipients) must report certain information to the Treasury
Department on a quarterly basis under paragraph 12 of the Agreement, and all Recipients
must continue to submit these periodic reports at least until the calendar quarter that begins
after March 24, 2022.

In addition, if a Recipient or its affiliate has issued notes, warrants, or other financial
instruments to the Treasury Department as compensation for the Payroll Support (which we
refer to as Taxpayer Protection Instruments), the Recipient must continue to submit quarterly
reports to the Treasury Department until the Taxpayer Protection Instruments are either no
longer outstanding or no longer held by the Federal Government. However, with respect to
these Recipients, beginning with the calendar quarter that begins after March 24, 2022, only
the financial statements described in paragraph 12(b) will be required. In addition, if the
relevant Taxpayer Protection Instrument is a warrant, it will be considered no longer
outstanding if it has been exercised in full.

Treasury may waive, in its sole discretion, any requirement to report information under
Paragraph 12 that it determines is no longer necessary for determining compliance with the
Agreement.

All Recipients will remain subject to the other reporting and recordkeeping requirements
under the Agreement, in addition to those under paragraph 12, as set forth in the Agreement.

6. Are all Recipients required to submit audited financial statements to the Treasury
Department?

Paragraph 12(b) of the Agreement requires Recipients to periodically provide the Treasury
Department with their financial statements. In the case of annual financial statements, such
statements must generally be audited by an independent certified public accountant.
However, if a Recipient does not prepare audited financial statements in the ordinary course
of its business, the Treasury Department will permit the Recipient to submit certified
financial statements that are unaudited.

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7. May Recipients submit their financial statements to the Treasury Department by
providing a link to the Recipients’ SEC filings?

Yes. Recipients that file their financial statements with the Securities and Exchange
Commission may provide a link to the relevant filing on EDGAR in order to satisfy the
requirement in paragraph 12(b) of the Agreement to provide their financial statements to the
Treasury Department.

8. For purposes of paragraph 38 of the Agreement, may Recipients rely on proxy
statements in addition to other reports filed with the SEC?

Under paragraph 38 of the Agreement, Recipients must report certain executive
compensation if certain conditions are met and the public does not have access to such
information through periodic reports filed under section 13(a) or 15(d) of the Securities
Exchange Act of 1934 or section 6104 of the Internal Revenue Code of 1986. For purposes
of this paragraph, it is also sufficient if the public has access to such information through
proxy statements filed with the SEC under section 14 of the Securities Exchange Act; those
companies will not be required to report under paragraph 38.

PAYROLL SUPPORT PROGRAM AGREEMENT: AFFILIATES

9. For purposes of the Agreement, are a Recipient’s directors and officers considered to be
“Affiliates”?

No. Directors and officers of the Recipient, as well as other natural persons, will not be
considered to be “Affiliates” for purposes of the Agreement.

10. For purposes of paragraph 6 of the Payroll Support Program Agreement, are
subsidiaries of the Recipient allowed to pay dividends to the Recipient?

Under paragraph 6 of the Payroll Support Program Agreement, through September 30, 2021,
the Recipient is prohibited from paying dividends, or making any other capital distributions,
with respect to the common stock (or equivalent equity interest) of the Recipient. This
prohibition only applies to the entity that signs the Agreement and any of its Affiliates that
are air carriers. Accordingly, the prohibition in paragraph 6 applies to subsidiaries of the
Recipient that are air carriers but does not apply to the Recipient’s other subsidiaries.

PAYROLL SUPPORT PROGRAM AGREEMENT: STOCK BUYBACKS

11. Does the prohibition on stock buybacks restrict the issuance or settlement of convertible
debt, or net settlement of stock-based compensation?

Under paragraph 5 of the Agreement, the Recipient and its Affiliates are prohibited from
purchasing an equity security of the Recipient or of any direct or indirect parent company of
the Recipient that is listed on a national securities exchange. Paragraph 5 does not prohibit a

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Recipient from engaging in transactions in which the Recipient and its Affiliates do not
repurchase outstanding shares of the Recipient’s or parent company’s publicly traded stock.

For example, a Recipient is not prohibited from issuing convertible debt securities. Further,
a net share settlement of outstanding convertible debt securities will not violate paragraph 5
of the Agreement if it does not involve the company’s repurchase of shares of publicly traded
stock. The exercise of a call right to repurchase convertible debt securities that are not listed
on a national securities exchange will also not violate paragraph 5 of the Agreement.

With respect to stock-based compensation, paragraph 5 does not prohibit net exercises of
stock options or other types of net issuance, if the transaction does not involve the company
repurchasing shares. For example, without violating paragraph 5, in a net settlement of stock
options the Recipient may reduce the number of shares it issues in connection with the
exercise of the stock option, to reflect the exercise price or withholding taxes associated with
the exercise. Similarly, paragraph 5 does not prohibit the net issuance of shares upon the
vesting of restricted stock units, where the number of shares issued is net of the number of
shares required to satisfy tax withholding obligations or other taxes associated with the
vesting of the restricted stock unit. In these examples, the prohibition under paragraph 5 is
not implicated because the Recipient is reducing the number of shares it issues but is not
repurchasing outstanding shares.

PAYROLL SUPPORT PROGRAM AGREEMENT: CONTINUATION OF SERVICE

12. If the Department of Transportation exempts the Recipient from a continuation of
service obligation, can the Recipient terminate its service consistent with the
exemption?

Paragraph 10 of the Agreement requires recipients to comply with any applicable
requirement issued by the Secretary of Transportation under Section 4114(b) of the CARES
Act to maintain scheduled air transportation service to any point served by the Recipient
before March 1, 2020. The recipient must therefore comply with all applicable orders issued
by the Department of Transportation under Section 4114(b). A recipient subject to an
exemption issued by the Department of Transportation will not violate paragraph 10 of the
Agreement by acting in accordance with the exemption.

USE OF PAYROLL SUPPORT FUNDS

13. Can Recipients use Payroll Support for the payment of employee wages, salaries, and
benefits after September 30, 2020?

Yes. There is no deadline for a Recipient to use Payroll Support, provided the Recipient uses
the funds exclusively for the continuation of employee wages, salaries, and benefits. Certain
restrictions and requirements under the Agreement continue to apply after the Recipient has
used all of the Payroll Support funds.

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TAX

14. Are Payroll Support payments taxable under the Internal Revenue Code?

The IRS will post FAQs on the Federal income tax consequences of Payroll Support
payments, which will be available here.

File and source

File: PSP-FAQs-4-20-20.pdf
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SHA-256: cbbb616efd5cb993a1331d0867bf6d30bcde1c96a205e31af24d5bbb52a47ee0
Our copy: PSP-FAQs-4-20-20.pdf
Original: home.treasury.gov