From the U.S. Government Accountability Office, www.gao.gov Transcript for: COVID-19's Impacts on the Aviation Industry and the Federal Effort to Help Description: Because of COVID-19, U.S. passenger air carriers are in dire economic straits in need assistance to prevent layoffs and other impacts to their employees, as well as significant impacts to travelers if there are reduced services. The CARES Act relief package authorizes the Department of Treasury to make us to $46 billion in loans or loan guarantees to support aviation and other businesses, but while that assistance is available, it has not been fully utilized. We talked to GAO's Heather Krause, an expert on aviation industries and a director in our Physical Infrastructure Team to find out more. Related GAO Work: GAO-21-198, Financial Assistance: Lessons Learned from CARES Act Loan Program for Aviation and Other Eligible Businesses Released: December 2020 [Intro Music] [Heather Krause:] Should there be an extension of this program or similar programs in the future, there are potential improvements that can be made. [Holly Hobbs:] Hi, and welcome to the GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. I'm Holly Hobbs. Because of COVID-19, U.S. passenger air carriers are in dire economic straits in need assistance to prevent layoffs and other impacts to their employees, as well as significant impacts to travelers if there are reduced services. The CARES Act relief package authorizes the Department of Treasury to make us to $46 billion in loans or loan guarantees to support aviation and other businesses. But while that assistance is available, it has not been fully utilized. Today, we talked to Heather Krause--an expert on aviation industries and a director in our Physical Infrastructure Team--about her recent review of Treasury's loans to the struggling aviation industry, which includes businesses ranging from airlines to ticket agents to national security businesses. Thank you for joining us, Heather! [Heather Krause:] Thank you for having me. [Holly Hobbs:] So, Heather, what impact has federal assistance had on this part of the aviation industry? Has it delayed or prevented job loss? [Heather Krause:] The aviation sector was substantially impacted by COVID-19. The passenger airlines have lost almost $20 billion and over 47,000 jobs in 2020, with losses forecasted to continue into 2021. The long-term impact of this assistance really remains to be seen, but the major airlines we spoke with said that the loan program and Treasury actions to implement it contributed to making private financing more available to these carriers. [Holly Hobbs:] And can you tell us a little bit about who got what? How much of that was directed to carriers? [Heather Krause:] Overall, $22 billion of that $46 billion in assistance was provided to three categories of businesses. That includes: 1) passenger air carriers, which also include ticket agents and repair stations; 2) cargo air carriers; and 3) national security businesses. The vast majority of that $22 billion, or 95% of that assistance, was provided to seven major passenger airlines. As for the cargo and national security businesses, we heard from industry associations representing those groups that their members were able to get support through other programs, were well-positioned to access financing through private markets, or were not interested in the long programs to the related requirements. [Holly Hobbs:] And I assume airlines had to apply for these loans. What were the requirements for getting a loan? [Heather Krause:] Airlines did have to apply and meet various requirements. So, among the key eligibility criteria was that credit is not reasonably available elsewhere at the time of the transaction. This criteria is similar to policies that are set for many other federal credit programs. That is, that the federal government be the lender of last resort and encourage the use of private credit markets. Second, Treasury must determine that the borrower has incurred or is expected to incur losses due to the pandemic, such that the continued operations of the business is jeopardized. And a third key criteria is only U.S.-incorporated businesses are eligible the receive assistance. [Holly Hobbs:] And how many applied versus received loans? [Heather Krause:] The Treasury received to 267 applications and provided assistance to 35 businesses for a total of $21.9 billion, and that's as of November 13th. We found that participation in the loan program really varied across business types due to the timing of decisions and other factors. Treasury prioritized applications for the largest passenger airlines and executed loans with seven of them for nearly $20.8 billion. For some of the other applicants, including the smaller passenger airlines and ticket agents, industry associations representing these groups told us that the amount of time Treasury took to evaluate the applications and other challenges contribute to the few loans being executed. [Holly Hobbs:] Do we know what happened with the other applicants? Like, why they were rejected or didn't get a loan? [Heather Krause:] There are various factors that contributed to those applicants not getting loans. In some cases, the applications were duplicates. In other cases, they found other assistance or they decided not to pursue the loans being offered. [Holly Hobbs:] So, what happens to all the money that's left over? [Heather Krause:] The Treasury says that they're done executing loans and plans to return the remaining funds to the Treasury general fund. Congress can consider additional legislative action to provide funds to the aviation sector. [ Music ] [Holly Hobbs:] So, sounds like Treasury has received the volume of applications for assistance from struggling U.S. passenger air carriers, but that the number of loans by comparison to the number of applications has been low, and that while money is still available, the window to use those funds is about to close. Heather, for this report we interviewed industry officials. What did they tell us about what they like to see moving forward? [Heather Krause:] Through our evaluation of the process, as well as talking with industry representatives about their experiences, we identified possible areas of improvement and lessons learned for future emergency lending programs. These improvements fall into three key areas. One, having multiple programs or multiple tasks within a program can better accommodate businesses of various types and sizes. So, a loan program well-suited to a large financially sophisticated applicant like a large passenger carrier will likely not be well suited to smaller businesses. Two, setting and communicating clear program goals can better align lender and borrower expectations. Treasury views itself as lender of last resort, but it did not state that in its published documents. This led to some applicants being surprised by parts of the process, such as when Treasury encouraged over one third of all applicants to apply to another loan program before continuing to pursue alone with Treasury. And third, communicating clear ti melines for action can help align lender and borrower expectations. So, the lack of a published timeline resulted in frustration among some of the applicants when loans were not made as quickly as they expected. As the Administration and Congress consider additional forms of assistance, either through standalone legislation or a part of a broader stimulus package, we feel that these lessons offer some opportunities for improvements in future programs. [Holly Hobbs:] And Heather, last question, what's the bottom line of this report? [Heather Krause:] Treasury had to design this loan program quickly and under very challenging circumstances. It took many positive steps in setting it up, including leveraging its experience in managing credit programs and standing up programs during times of crisis in the private sector. But should there be an extension of this program or similar programs in the future, there are potential improvements that can be made, including structuring the program to accommodate businesses of different sizes and setting and communicating goals that can better align lender and borrower expectations. [Holly Hobbs:] That was Heather Krause talking about GAO's recent report on federal assistance for the aviation industry--including airlines and other businesses. Thank you for your time, Heather. [Heather Krause:] Thank you. [Holly Hobbs:] And thank you for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple podcasts, and make sure you leave a rating and review to let others know about the work we're doing. For more from the Congressional Watchdog, the U.S. Government Accountability Office, visit us at GAO.gov.