Who CARES? – Business Aviation
- Erika Armstrong
Airplanes are designed with the idea that systems will inevitably fail, so there are backup systems and checklists to help guide pilots through an emergency. Because no one had a checklist for COVID-19, the world is making it up as we go along. The Business Aviation sector is an unusual niche, so the general terms of the CARES Act are causing anxiety and fear despite operators trying to abide by the spirit of the law.
Two Money Rivers and a Side Stream
One of the primary emergencies in aviation right now is keeping everyone employed while airplanes are sitting empty on the ground. Relief is available from two money rivers and a side stream.
The CARES Act for Air Carriers (River 1 = Section 4112) provides up to $25 billion in passenger Air Carrier Payroll Support. River 1 provides for 6‑months of payroll support.
A separate loan program (River 2 = Section 4003) provides liquidity to eligible businesses.
Following are the general requirements for passenger air carriers to receive Payroll Support:
- The carrier must use the funds exclusively for employee wages, salaries, and benefits.
- The carrier may not lay off or furlough or reduce pay rates and benefits until September 30, 2020.
- If the company is listed on the national security exchanges, the carrier must ensure that through September 30, 2021, they do partake in any equity security exchange of the applicant (or in/direct parent company) and they must not pay dividends or make capital distributions.
- The carrier must agree to certain limitations on the compensation of certain officers and employees.
For an expanded overview of the Payroll Support to Air Carriers and Contractors, click here.
The Small Business Administration (Stream = SBA) is also providing a Paycheck Protection Program (PPP) which provides small businesses with funds to cover up to eight weeks of payroll. Funds are provided via a loan, which will be forgiven if you follow the rules.
Loopholes Can Choke
After any Act is implemented and the rules are put into motion, the loopholes are discovered and often abused. To head off the abuse, those loopholes get closed by the government while businesses and people, through no fault of their own, have their necks in the loop as it's being pulled shut.
Many Business Aviation flight departments operate under unique structures, which makes them nervous that they will have to repay the loan or worse, suffer penalties for not understanding the terms. Because of these variables, many flight departments have given up on the application or even after applying, the application is rejected because it is no longer a valid form so they must start the process over again…and again.
Elliot Mintzer, President of MYSKY Aviation and TRYP Air Charter, represents different operations within one entity through vertical integration which makes applying for relief aid complicated. "For us, the biggest issue is the 1099 independent contractor rule. Because of the vertical integration, all our staff (admin, crew, MX, cleaning etc) are paid in that manner. In the beginning, 1099 paid personnel were allowed to be in the calculations. It expressly said so in the application and we had to verify/certify that. Now, 1099 personnel are not allowed to be in the calculations, which is why we are being told forgiveness will not happen. So we have no other option than to give it all back. It's not even the audit possibility because we are totally legit."
While at the same time some flight departments are pulling their applications or being rejected, they're also watching large aircraft management companies (those who don't actually own aircraft and their pilots are paid by the aircraft owners via the management company's payroll) receive tens of millions of dollars. Feedback from a few of the industry leaders is the assumption that this payroll credit can be used to bridge the gap for aircraft owner's pilot pay, but upcoming audits will determine that interpretation.
Following are some of the loopholes and gray areas in relief funding that are being tested:
- If you switch employees from full-time to part-time, does that reduce their "rate of pay" (or just the amount)?
- If 75% of money from SBA stream PPP is required to be used for payroll and the rest for utilities, for the remaining 25% of the PPP requirement, can fuel, for example, be considered a utility?
- If you require support and salaried employees to take unpaid time off, is that a furlough or reduction in rate of pay?
- Are 1099 employees true employees, leased employees, or independent contractors?
- If you lay off workers before you apply, do you have to rehire them when you get funded?
Spirit of the Law
If we pull back from the details and look at the intent, business relief aid is there to keep businesses funded, which avoids putting humans in the government unemployment line. It's two-fold in that it props up business to help people.
General aviation generates more than $150 billion in economic activity annually and creates 7.5 million jobs in the United States. Worldwide, the industry supports 65.5 million jobs; so it's vital to help aviation through this crisis. As funding packages were pulled together, it was initially meant for a short term because we've never done this before and don't know when or if COVID-19 will be defeated or at least controlled and because of that, the rules change.
Within the applications are stern warnings about audits and liability which have been the trigger for many companies to not apply or begin the process of giving it all back for fear of not understanding the terms of acceptance.
Ryan Waguespack, VP of Aircraft Management, Air Charter Services and MROs at National Air Transportation Association (NATA) suggests keeping it simple. "I believe the majority of flight departments are following the spirit of the law and being respectful of the system. They're all just trying to work to keep their skilled employees, provide critical services, continue to enable other businesses that also provide essential services and jobs, and, ultimately, survive. NATA is assisting aviation businesses by offering webinars led by industry experts who can help them navigate through all of the program variables."
When asked how flight departments can feel more confident about the application and use of funds, Ryan suggests, "One of the first things a flight department can do is to delineate lines of income and expense and make them all traceable. Set up a separate PPP and/or PSP bank account so you can document your expenses…and prepare for an audit. If you're transparent and track the money, you should be adequately prepared."
Just Like an Aircraft Emergency
From the moment Coronavirus started entering the news feed, it has left a wake of anxiety, fear, and frustration because that is the nature of the beast. Just like an aircraft emergency, we have a general idea of what to do, but each systems failure is unique in how it fails and how you can continue flying with the failure. There are backup and support systems, but you have to know how to use them and, in this case, we're creating the checklist as we deal with the emergency. The government's intent is to keep aviation flying and we'll have to review and pay for the damages after we're all safely on the ground.
For now, ask questions, document answers, and ask for help. The flight departments who will survive are those who can bend and adapt to the pressure instead of standing rigid, trying to resist. The NATA and NBAA are putting together webinars to deal with the confusion so keep an eye on their websites for more information.
For your reference (as of 5/22/20), there have been 202 Passenger Carriers who have accepted Payroll Support. Click here to see the list and Anticipated Payroll Support figures.
Below are links that might be able to provide some answers:
From the front desk of an FBO to the captain's seat of a commercial airliner, Erika Armstrong has experienced everything that aviation has to offer. She is the VP of Business Development at Advanced Aircrew Academy, aviation professor at MSU Denver, and author of A Chick in the Cockpit. If you want to share your CARE Act experience, she can be reached at firstname.lastname@example.org.