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House Democrats try to claw back COVID aid from cargo airlines

The third-ranking Democrat in the House of Representatives is asking four cargo airlines to return more than $630 million they received in emergency funding to keep workers from losing their jobs during the coronavirus pandemic, saying they aren’t entitled to the money because cargo business is roaring.

South Carolina Rep. James Clyburn, the majority whip and chairman of the Oversight and Reform select subcommittee on the coronavirus crisis, on Monday wrote Amerijet International, Atlas Air Worldwide Holdings (NASDAQ: AAWW), Kalitta Air and Western Global Airlines to return the money or demonstrate that they needed the funds to prevent involuntary furloughs.

“Congress intended for these taxpayer funds to save jobs, not to provide windfalls to thriving businesses,” Clyburn wrote.

Passenger airlines, forced to cancel most flights when the coronavirus destroyed travel demand, are losing billions of dollars each quarter and don’t expect sales to return to last year’s level for at least three years. All-cargo airlines, however, have never been busier. The shutdown of passenger networks eliminated more than 50% of the global capacity for goods movement by air, but shipping demand has continued to grow all year for personal protective equipment, medical supplies, e-commerce orders, replenishing depleted retail inventories and, now, seasonal goods for the holidays. Freighters have not been able to close the supply gap, resulting in scarcity and high rates.

Passenger airlines received $50 billion in aid under the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in March, with half the money in direct aid if workers were retained for six months at their base pay and benefits. The other half  was in the form of optional loans and loan guarantees. The package also set aside $8 billion for cargo airlines, with a similar split.

Despite widespread support on Capitol Hill for an extension of the Payroll Support Program (PSP), Republicans and Democrats have not been able to agree on a broader stimulus package for the entire economy. More than 50,000 airline industry workers have been furloughed since the beginning of the month, including 32,000 at United Airlines (NASDAQ: UAL) and American Airlines (NASDAQ: AAL).

The National Air Carrier Association, which represents 18 air carriers, including the four under fire from the House Oversight Committee, has urged Congress to extend the PSP through stand-alone legislation.

The select subcommittee gave the airlines until Monday to return the funds to the Treasury Department. Airlines that choose to keep the funds were told to respond by Nov. 2 with documentation showing eligibility for PSP funding, finances, layoffs and new hires, how PSP money was spent, and corporate officers or senior management who received increased compensation.

“If your company did not need PSP funds to keep workers on the payroll, failing to return the funds to the Treasury would be inconsistent with Congress’ clear intent,” Clyburn told the chief executives of each airline.

Air Transport Services Group, a holding company with two cargo-centric airlines, notably didn’t receive scrutiny from the House Oversight Committee. 

Although ATSG (NASDAQ: ATSG) received $75.4 million in government aid, $67 million went to support subsidiary Omni Air International, an outsourced provider of passenger capacity and charter services. Another $8 million went to cover labor costs for passenger service conducted by Air Transport International, a contract cargo carrier that also flies four Boeing 757 combination aircraft for the U.S. military. The unique planes carry cargo and people on the main deck, separated by a special rigid bulkhead.

“The level of payroll support proceeds granted to us under the CARES legislation was based solely on the pandemic-related reductions in the passenger operations at two of our airlines. Our requested level of support, less than half of the amount our airlines were eligible to receive under the program, did not include anything related to our airlines’ cargo operations, as they have to date not been adversely impacted by the pandemic,” Chief Financial Officer Quint Turner told FreightWaves. 

He wouldn’t rule out headcount reductions if Congress doesn’t pass another relief package.

Who got what:

Atlas Air, of Purchase, New York, received more than $406 million in PSP funds. During the second quarter, earnings per share increased 87% from last year. The company’s stock has quadrupled in value since bottoming in mid-March and its outlook calls for adjusted full-year net income to be double that in 2019.

During the early stages of the pandemic, Atlas Air played a critical role in Project Airbridge, the emergency airlift organized by the Federal Emergency Management Agency to deliver personal protective equipment to COVID hot spots.

In March, it gave its pilots an interim 10% pay increase, but Teamster union officials note the raise only came after four years of negotiations on a new long-term contract that is still unresolved. On Twitter, they said Atlas executives were self-serving by taking the bailout money.

Clyburn said Atlas Air, which counts Amazon Air among its key customers, received more than any other carrier “while simultaneously reporting record earnings.”

Atlas Air also operates 11 passenger aircraft that are chartered by airlines, charter brokers, sports teams, entertainers, the U.S. military.

Atlas Air plans to respond to the Oversight and Reform Select Subcommittee, Chief Communications Officer Debbie Coffey said. The company is scheduled to report third quarter earnings on Nov. 5.

Privately held Kalitta Air, Ypsilanti, Michigan, received more than $161 million in government funds even though its business appears to be strong, the subcommittee complained. It said Kalitta is benefiting from very high airfreight rates. In July, Kalitta secured a two-year contract award from the U.S. Postal Service worth $100.4 million for transportation services. The company also flies cargo for the U.S. military under the Civil Reserve Air Fleet program. 

Kalitta could not be reached for comment. 

Western Global Airlines, Estero, Florida, received more than $34 million in PSP funds. The select subcommittee said the company is enjoying strong demand for its services from customers such as UPS, DHL Express, the Postal Service, Amazon and the Department of Defense. It also cited a Bloomberg report that the airline is cashing in on junk bonds that will lead to a large tax break and potentially keep the company union free.

The Washington Post, which first reported the story, also said Western Global received a $5 million to $10 million loan under the Paycheck Protection Program, which was designed to support small businesses. A special inspector general monitoring distribution of pandemic relief has questioned whether such double-dipping is appropriate after the Post found 202 aviation companies took money from both programs.

“It is troubling that Western Global is receiving over $34 million in taxpayer funds intended to cover the wages and benefits of its workers while simultaneously reporting robust demand and unencumbered access to capital. This financial success suggests that Western Global did not need taxpayer funds to help retain its workers,” Clyburn wrote.

An official who answered the phone but declined to identify himself said Western Global is still studying the letter and had no comment.

Miami-based Amerijet International received more than $30 million in government funds. The select subcommittee said it didn’t like the fact that the privately held company says it is profitable and that it added a plane to its fleet last month — while taking government aid. A spokesperson for the company did not return messages seeking comment.

A couple of the Select Subcommittee’s assertions didn’t stand up to closer scrutiny. It said Japan Airlines outsourced some cargo flying to Kalitta Air in August, but the deal was announced in August 2019. It also said Atlas Air’s second quarter earnings increased 300%, but no financial metric in the report showed anything approximating such a gain. The Subcommittee pointed to a large increase in adjusted net income, rather than a more comprehensive measure of the company’s operations. Net income actually dipped in the second quarter, but increased 79% to $102.3 million in the first half of the year.

This article originally appeared on American Shipper

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