The U.S. Treasury Department to Auction Airline Warrants

Government Initiatives

The U.S. Treasury Department announced plans on Friday to conduct auctions to sell warrants that allow the purchase of stock in U.S. airlines. These warrants were obtained following the approval of $54 billion in COVID-19 air carrier assistance by Congress in 2020 and 2021.

Financial Assistance Details

Out of the $54 billion allocated, airlines had to repay $14 billion. In return, the Treasury received warrants to buy stock at the prices prevailing during the awards. Airlines that accepted government aid were under restrictions such as bans on stock buybacks, dividends, and executive compensation until September 2022. Furloughs and layoffs were also prohibited.

Recipient Airlines

American Airlines received the highest amount of aid at $12.6 billion, followed by Delta Air Lines at $11.9 billion, United Airlines at $10.9 billion, and Southwest Airlines at $7.2 billion. Smaller awards were also granted to seven other airlines, including $2.2 billion for Alaska Airlines.

Warrant Value

Based on a Reuters calculation, the warrants are valued at approximately $478 million at the closing prices on Friday. Notably, many of the airline warrants are priced below the current trading rates of the airlines’ stocks.

Future Auction Details

The auctions are set to kick off the week of June 3, with only qualified institutional buyers eligible to acquire the warrants, as per Treasury’s guidelines.

Impact of COVID-19

The COVID-19 crisis brought about a substantial decline in air travel demand, causing airlines to struggle for survival. Despite the challenges, air travel has gradually picked up and is expected to rebound to pre-pandemic levels this year.