On March 11, 2021, President Biden signed the American Rescue Plan Act of 20211American Rescue Plan Act of 2021, Pub. L. No. 117-2 (2021). (ARP Act) into law, which provides approximately $1.9 trillion in financial assistance to individuals and industries impacted by COVID-19. The ARP Act continues certain payroll support programs contained in the Coronavirus Aid, Relief, and Economic Security Act2Coronavirus Aid, Relief and Economic Security Act, Pub. L. No. 116-136 (2020). (CARES Act) and the Consolidated Appropriations Act, 20213Consolidated Appropriations Act, 2021, Pub. L. No. 116-260 (2020). (CA Act), and provides an additional payroll support program that includes certain other entities in the aviation industry that were previously ineligible for financial assistance.
Specifically, Section 7202 of the ARP Act establishes a $3 billion payroll support program within the Department of Transportation (instead of the U.S. Treasury) that will provide grants to eligible aviation manufacturers and MROs to compensate “eligible employee groups.” Further, as the funds provided under the CA Act’s Payroll Support Programs were expected to be exhausted and the furlough protections were set to expire in March, the ARP Act extends support for air carriers and aviation contractors. Under this program, the ARP Act appropriates an aggregate of $14 billion for “eligible air carriers” and $1 billion to “eligible contractors” to be used exclusively to pay employee wages, salaries, and benefits.
In this alert, we briefly discuss eligibility, procedure for obtaining funds, availability of resources, and other relevant requirements and restrictions for aviation manufacturers, air carriers, and aviation contractors under the ARP Act.
The ARP Act’s Payroll Support Program for Aviation Manufacturers Per Section 7202
Eligibility – The program provides up to $3 billion for eligible aviation manufacturers and MROs. The entity must be established, created or organized in the United States or under the laws of the United States and a majority of its employees engaged in manufacturing, maintenance, repair and overhaul activities and services must be based in the United States. Further, eligible applicants must have involuntarily furloughed or laid off at least 10 percent of their workforce in 2020 as compared to 2019 or have experienced a 15 percent decline in revenues in 2020 as compared to 2019. Importantly, entities that received funds from the air carrier payroll support program under the CARES Act, received payroll tax credits under the CARES Act, or continue to expend Paycheck Protection Program (PPP) funds are ineligible for payroll support under the ARP Act.
Procedure for Obtaining Funds – In order to receive payroll assistance funds from this program, employers in the aviation manufacturing industry must agree with the Secretary of Transportation (Secretary) that they will use such funds exclusively to continue paying employee wages, salaries, and benefits. Employers must agree to refrain from conducting involuntary furloughs or reducing pay rates and benefits for the eligible employee group and must maintain the total compensation level for the eligible employee group as of April 1, 2020 for the duration of the agreement (not to exceed 6 months) and receipt of public contributions under this program. Note, the duration for the foregoing requirements is the later of September 30, 2021 and the duration of the agreement (not to exceed 6 months) and receipt of public contributions under this program for employers holding any type or production certificate or similar authorization from the Federal Aviation Authorization.
Availability – Unlike the air carrier and contractor programs under the CARES Act and the CA Act, where the Treasury Department has been responsible for overseeing the Payroll Support Programs for the aviation industry, this ARP Act program tasks the Department of Transportation with oversight. Thus, there may be some initial delays as the Department of Transportation establishes internal procedures and infrastructure necessary to administer this program.
Restrictions on the Use of Funds – Employers may not use funds received from the program for back pay of returning, rehired, or recalled employees. Rather, they must use these funds exclusively for the continuation of employee wages, salaries, and benefits for an Eligible Employee Group (defined below).
Definition of an “Aviation Manufacturing Company” under the ARP Act – In Section 7201(2), the ARP Act defines “aviation manufacturing company” to mean a corporation, firm or other business entity that (1) actively manufactures an aircraft, aircraft engine, propeller, or a component, part, or systems of an aircraft or aircraft engine under a Federal Aviation Administration approval process; (2) holds a certificate issued under 14 C.F.R. 145 (i.e. a Part 145 Certificate holder) for maintenance, repair, and overhaul of aircraft, aircraft engines, components, or propellers; or (3) operates a process certified to the Society of Automotive Engineers’ AS9100 quality management system related to the design, development, or provision of an aviation product or service, including a part, component, or assembly.
Definition of an “Eligible Employee Group” under the ARP Act – Under the ARP Act, the Secretary of Transportation will provide grants to employers in the aviation manufacturing industry so that they can pay eligible employee groups. In Section 7201(1), the ARP Act defines “eligible employee group” as a portion of an employer’s U.S. workforce that: (1) does not exceed 25 percent of the employer’s total U.S. workforce as of April 1, 2020; (2) contains only employees with a total compensation level of $200,000 or less per year; and (3) is engaged in aviation manufacturing activities and services, or maintenance, repair, and overhaul activities. Note, this program under the ARP Act does not automatically exclude “corporate officers” from the eligible employee group as is the case under the Section 7301 program and previous Payroll Support Programs.
The ARP Act’s Payroll Support Program for Air Carriers and Air Contractors Per Section 7301
Eligibility – This program is a further continuation of the CARES Act and CA Act Payroll Support Programs and provides up to $14 billion for passenger air carriers and up to $1 billion for contractors that provide catering functions or functions at an airport directly related to the air transportation of people, property or mail (specifically including aircraft loading, security, ticketing, check-in, aircraft cleaning, and ground handling), as well as subcontractors that perform such functions. Although the amount of funds available under the ARP Act is less than those available under the CARES Act ($32 billion) and the CA Act ($16 billion), this assistance is indispensable for passenger air carriers and contractors that have been experiencing significant hardship from global travel restrictions caused by COVID-19 and is intended to cover April 1, 2021 through September 30, 2021 or longer for some recipients.
Amount – Under the ARP Act, eligible air carriers will receive an amount in proportion to the amount they received under the CA Act and eligible contractors will receive the same amount that they received under the CA Act.
Availability – The ARP Act requires the Treasury Department to issue streamlined procedures in order to allow eligible air carriers and contractors to request financial assistance. The Treasury Department is expected to make initial disbursements of financial assistance under the ARP Act after March 21, 2021.
Requirements – In order to be eligible for the ARP Act’s payroll support program, passenger air carriers and contractors must have received financial assistance under the CA Act and either provide air transportation or catering functions as of March 31, 2021. Furthermore, passenger air carriers and contractors must file certifications with the Secretary of Transportation, where they must agree to certain restrictions (described in further detail below).
Grant Program Restrictions – Recipients of funds under the ARP Act are subject to restrictions similar to those contained in the CARES Act with extended time periods, where applicable. In a previous alert, we summarized the CARES Act’s provisions and restrictions pertaining to the aviation industry.4 Jason Huff & Chris Buchanan, Industry-Focused CARES Act Summary, King & Spalding LLP (Mar. 27, 2020). The restrictions for the ARP Act’s payroll support program are similar and include:
- No Furloughs – A grant recipient must not conduct involuntary furloughs or reduce pay rates or benefits through September 30, 2021. The recipient must also not conduct such actions between March 31, 2021 and the date on which the air carrier or contractor makes its certification to the Secretary of the Treasury.
- No Share Buybacks – A grant recipient must refrain from any repurchases of equity securities of its own stock or that of its parent company, in each case if such securities are listed on a national exchange. This prohibition will last from incurrence of the financial assistance through September 30, 2022.
- No Dividend Payments – A grant recipient must also refrain from paying dividends or making capital contributions on its common stock until September 30, 2022. The Treasury Department did release an FAQ related to the CARES Act Payroll Support Program that clarified that pass-through entities may make limited distributions for taxes.
- No Increases in Compensation – From April 1, 2021 to April 1, 2023, no officer or employee whose total compensation exceeded $425,000 in 2019 can receive (1) compensation in excess of what they had received in 2019 for any 12-month period or (2) severance pay or other benefits upon termination which exceeds twice the maximum total compensation received in calendar year 2019. There is an exception for compensation determined by a collective bargaining agreement entered into prior to the enactment of the ARP Act. Furthermore, any officer or employee whose total compensation exceeded $3 million in calendar year 2019 may not receive more than $3 million plus half of the employee’s salary amount over $3 million.
The CARES Act and the CA Act have provided indispensable financial assistance to the aviation industry, which has been experiencing unprecedented challenges during COVID-19 as nations have imposed shutdowns and people have refrained from travelling. The ARP Act extends this assistance as the industry continues to recover from COVID-19’s consequences.
King & Spalding LLP has been advising entities in the aviation industry on the CARES Act and the CA Act for over a year and represents two of the top ten contractors to air carriers on these matters. Additionally, King & Spalding LLP represented an air contractor in front of the Select Subcommittee on the Coronavirus Crisis. Aviation manufacturers and MROs that seek financial assistance for the first time, as well as air carriers and contractors that seek further support, should contact King & Spalding to learn how the ARP Act can benefit them.