U.S. Treasury, Q&A: Payroll Support to Air Carriers and Contractors (updated Dec. 16, 2020)

Summary

A U.S. Treasury Q&A on Payroll Support to Air Carriers and Contractors, updated as of December 16, 2020, on the Payroll Support Program under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It states that applicants in a court-supervised bankruptcy proceeding may be eligible under certain conditions, including a segregated bank account receiving no more than one-sixth of the total awardable amount at any one time. The Q&A states that amounts paid to independent contractors are not eligible for payroll support and that only legal entities individually eligible may be included. It states that the Section 8 compensation limits apply to any 12 consecutive months from March 24, 2020, to March 24, 2022, and that Treasury may consider late applications from cargo air carriers submitted after the April 27, 2020 deadline.

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                     Q&A: Payroll Support to Air Carriers and Contractors
                              Updated as of December 16, 2020

Following are answers to frequently asked questions regarding the Payroll Support Program under
Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief, and Economic Security (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 https://home.treasury.gov/system/files/136/Form-of-PSP-Agreement.pdf


1) Are air carriers or contractors subject to a court-supervised bankruptcy proceeding
   eligible to receive assistance under the Payroll Support Program?

   Applicants for the Payroll Support Program subject to a court-supervised bankruptcy
   proceeding may be eligible under certain conditions. Such an applicant will be asked to
   provide additional information to enable the Treasury Department to evaluate whether the
   applicant will be able to satisfy its obligations in the program and is eligible as an air carrier or
   contractor under the statutory definitions. Treasury may also request a written statement from
   the applicant regarding its ability to comply with the terms of the program and a reorganization
   plan, if any.

   If the Treasury Department determines that an applicant’s bankruptcy does not create a
   material risk that it would be unable to satisfy its obligations in the program or that it would
   cease to be eligible as an air carrier or contractor, the applicant may be approved, subject to
   certain additional conditions. These include requirements that payroll support funds be kept
   in a segregated bank account, that the account receive no more than one-sixth of the total
   awardable amount at any one time, and that certifications of compliance be provided before
   receiving disbursements of payroll support.

2) Is compensation that air carriers and contractors pay to independent contractors eligible
   to be included in the calculation of awardable amounts?

   No. For applicants that do not transmit reports to the Department of Transportation under 14
   CFR 241, the CARES Act provides that the calculation of the awardable amount includes only
   the amount of wages, salaries, benefits, and other compensation that the air carrier or contractor
   paid the employees of such air carrier or contractor between April and September 2019.
   Independent contractors are not employees of the company, so amounts paid to independent
   contractors are not eligible for payroll support, and recipients may not use payroll support
   funds to pay independent contractors.

3) Air carrier or contractor applicants that are eligible for payroll support may have
   subsidiaries or be under common ownership with other legal entities that provide services
   to the applicant. May such subsidiaries or affiliated entities receive payroll support or
   be included in the calculation of awardable amounts?
   Only legal entities that are individually eligible for payroll support may receive payroll support
   or be included in the calculation of awardable amounts. Each individual legal entity will be
   evaluated for eligibility as an air carrier or contractor, and for applicants that do not transmit
   reports to the Department of Transportation under 14 CFR 241, the awardable amount can only
   include the amount of wages, salaries, benefits and other compensation that an eligible air
   carrier or contractor paid the employees of such air carrier or contractor between April and
   September 2019. Affiliated entities that are not themselves eligible air carriers or contractors,
   as defined in the CARES Act, cannot be included, regardless of whether they are under
   common ownership with, or provide services to, an eligible air carrier or contractor.

4) Does the Agreement prohibit dividends or other capital distributions for the purposes of
   paying tax liabilities of air carrier or contractor recipients that are organized as pass-
   through entities for tax purposes?

   No. A Payroll Support Program participant that is an S-corporation or other tax pass-through
   entity may pay dividends or make distributions to the extent reasonably required to cover its
   owners’ tax obligations in respect of the entity’s earnings. Such distributions must be subject
   to an annual reconciliation, with any surplus or deficiency to be deducted from or added to
   distributions, as applicable, in the following year.

5) Over what time period should the compensation limitations in Section 8 of the Agreement
   be calculated?

   Section 8 of the Agreement imposes certain limits on compensation for employees of a Payroll
   Support Program participant whose total compensation exceeded $3 million in 2019.
   Consistent with section 4116(a)(3) of the CARES Act, this limitation applies with respect to
   compensation during any 12 consecutive months during the period beginning March 24, 2020,
   and ending March 24, 2022.

6) Will applications that were submitted after the deadline be considered?

   The Treasury Department does not expect to consider applications for the Payroll Support
   Program from passenger air carriers or contractors that were submitted after the April 27, 2020
   deadline, which was set in guidance issued by the Treasury Department on March 30, 2020,
   because available program funds are expected to be exhausted based on applications that were
   submitted before the deadline. However, the Treasury Department may consider applications
   for the Payroll Support Program from cargo air carriers that were submitted after the April 27,
   2020 deadline, due to remaining available funds.

7) The Agreement prohibits Payroll Support Program recipients and their affiliates from
   purchasing an equity security of the recipient or any parent company that is listed on a
   national securities exchange. What is a “parent company” for this purpose?

   Under section 4114 of the CARES Act and section 5 of the Agreement, neither a Payroll
   Support Program recipient nor any of its affiliates may, in any transaction, purchase an equity
   security of the recipient or of any direct or indirect parent company of the recipient that, in
   either case, is listed on a national securities exchange. For purposes of this restriction, “parent
   company” means any company that consolidates the recipient for purposes of financial
   reporting, such as under rules of consolidation established by the Securities and Exchange
   Commission or U.S. generally accepted accounting principles.


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