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Budget airlines are reportedly seeking federal financial assistance that could be structured as stock warrants convertible into equity stakes, according to people familiar with the matter cited by The Wall Street Journal.
The Journal reported that a group of budget carriers, including Frontier and Avelo, is seeking $2.5 billion in federal assistance through stock warrants that could convert into equity in the airlines. The report said the $2.5 billion figure was based on an estimate of expected jet fuel spending this year versus earlier forecasts, assuming jet fuel prices remain above an average of $4 per gallon for the rest of the year.
Conversations about a possible relief package for budget airlines are expected to continue in the coming days, the Journal said.
The news follows a reported meeting between leaders of several budget carriers and Transportation Secretary Sean Duffy and Federal Aviation Administration chief Bryan Bedford last week.
In a statement to FOX Business, Avelo said: “As the smallest and newest airline in the country, Avelo competes against significantly larger airlines who have unprecedented market dominance. Our focus on unserved and underserved airports gives millions of U.S. consumers low fare nonstop air service options they otherwise would not have. We have no specific comment on the report, but we emphatically agree that a healthy airline industry with strong competition is important to the U.S. economy, especially during this period of high fuel prices.” FOX Business also reached out to Frontier for comment.
Rising jet fuel prices, tied in the report to the war in Iran, have strained airline outlooks by increasing costs beyond earlier expectations. Some carriers, including larger rivals such as United and American, have responded by raising fares and checked baggage fees.
United recently raised passenger fares, citing higher jet fuel costs.
Separately, leading budget carriers requested that Congress suspend a 7.5% federal excise tax on airline tickets and a $5.30 per segment tax. The Association of Value Airlines estimated the suspension would offset about one-third of increased fuel costs. The group represents Spirit Airlines, Frontier Airlines, Allegiant Air, Sun Country and Avelo.
The budget airlines’ pursuit of federal aid also comes as the Trump administration weighs another proposal aimed at Spirit Airlines: a $500 million loan that would allow the federal government to convert warrants into equity stakes. Under the reported structure, the federal government would receive warrants equal to about 90% of Spirit’s equity in exchange for the funding.
Rising jet fuel costs have complicated Spirit’s plan to exit Chapter 11 bankruptcy this summer. Spirit entered Chapter 11 bankruptcy proceedings for the second time last year.
During the COVID-19 pandemic, the Treasury Department received warrants in major airlines after a roughly $54 billion support package designed to prevent mass layoffs.
Reuters contributed to this report.
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