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SkyWest (SKYW) to Receive $233M in Additional Payroll Support

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SkyWest’s (SKYW - Free Report) subsidiary SkyWest Airlines has entered into a Payroll Support Program Extension Agreement with the U.S. Treasury Department, by dint of which, it will receive approximately $233 million under the Consolidated Appropriations Act of 2021. The financial aid is meant to help the airline cover its payroll expenses.
 
Airlines grappling with coronavirus-led travel demand woes have long been seeking additional federal aid to keep their workers employed, after the first round of coronavirus aid expired on Sep 30, 2020. Following the expiration, some carriers like United Airlines (UAL - Free Report) and American Airlines (AAL - Free Report) resorted to furloughs while others reduced pays of employees.

With the second coronavirus aid package (granting $15 billion in payroll support), airlines are required to call back their furloughed workers and keep them employed through Mar 31, 2021. They are required to be paid their due salaries from Dec 1, 2020, through Mar 31, 2021.

Apart from prohibition on involuntary furloughs, this program puts a restriction on the payment of dividends and the repurchase of shares through Mar 31, 2022. These conditions for receiving additional federal aid are similar to those that were required under the first payroll support program.

Coming back to SkyWest, the carrier has already received half of the total amount of $233 million. It will receive the remaining half in the next month. Approximately $40 million of the funding will be in the form of a 10-year low interest unsecured term loan. SkyWest will issue warrants to the U.S. Treasury Department for purchasing approximately 98,815 of its shares at a strike price of $40.41.

 

The airline further stated that it has entered into an amendment to its Loan and Guaranty Agreement with the U.S. Treasury Department to extend the deadline for borrowing under the $725 million facility from March 26, 2021 to May 28, 2021.

Each of the stocks mentioned above carry a Zacks Rank #3 (Hold).

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Shares of the company have rallied more than 100% in the last six months.

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