CARES Act Includes Tax Provisions Affecting Business Aircraft Operators see more
NAFA member, John B. Hoover, Partner at Holland & Knight, LLP, discusses the CARES Act tax provisions that affect business aircraft operators.
This information is intended to provide members with an introduction to tax provisions in the CARES Act. Readers are cautioned that this information is not intended to provide more than an introduction to the subject matter, and since the materials are necessarily general in nature, they are no substitute for seeking the advice of legal and tax advisors to address your specific business/personal needs. Download a copy of this article in PDF format.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) was signed into law on March 27, 2020. It includes numerous relief provisions that may benefit companies operating business aircraft. In addition, the CARES Act provides a tax holiday for the remainder of 2020 from the federal excise tax on air transportation and amends several income tax code sections that may affect owners and operators of business aircraft.
Given the complexity of these tax law amendments, this resource offers only a general description of the amendments. For details regarding the calculations and their application to fiscal years, please refer to the statute.
Federal Excise Tax (CARES Act § 4007; I.R.C. § 4261)
The CARES Act provides that the federal excise tax (FET) on air transportation under Internal Revenue Code (I.R.C.) §§ 4261 and 4271 does not apply to amounts paid during the excise tax holiday period from the day after enactment of the CARES Act (i.e., from March 28, 2020) through the end of calendar year 2020. This means that FET does not need to be collected on amounts paid for charter flights, time share flights, or any other flights, irrespective of whether the flights are conducted under FAA Regulations Part 91, 135 or otherwise.
During this excise tax holiday period, no fuel tax will be required to be collected on jet fuel used for commercial aviation. If fuel tax is collected on kerosene used for commercial aviation, then the purchaser can request a refund of such fuel tax. The foregoing exemption does not apply to the 0.1 cent per gallon Leaking Underground Storage Tank (LUST) tax. This means that only the 0.1 cent LUST tax is ultimately due on fuel purchased for commercial aviation.
The definition of commercial aviation for tax purposes is generally based on whether air transportation is provided for compensation or hire, and it is not tied to the FAA Regulatory definition. I.R.C. § 4083(b). Accordingly, only the 0.1 cent LUST should ultimately apply to typical charter flights and flights conducted pursuant to a time sharing agreement. However, the full fuel tax amount (21.9 cents or 24.4 cents per gallon) would apply to fuel purchased for use in noncommercial operations such as when a company purchases fuel for use in operating its aircraft for flights conducted for its own business.
Fuel purchased for fractional program aircraft is subject to the fuel tax on fuel used for noncommercial aviation (21.9 cents or 24.4 cents per gallon) plus a surtax of 14.1 cents per gallon. Since the excise tax holiday does not apply to fuel for noncommercial aviation or the surtax, the fuel taxes paid by fractional program operators would not appear to be affected by the excise tax holiday.
Limitation on Deduction of Business Interest (CARES Act § 2306; I.R.C. § 163(j))
Under the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97) beginning in 2018, taxpayers’ deductions of business interest expense were limited to 30% of adjusted taxable income (generally net business income). The excess business interest was not deductible and was treated as business interest expense subject to the limitation in the next year.
Although the deduction limitation applied beginning in 2018, adjusted taxable income is calculated without deducting depreciation in 2018 through 2021. In the case of partnerships and S corporations, the interest deduction limitation was determined at the entity level. The deduction limitation generally did not apply to taxpayers with gross income below $25 million (determined by aggregating income of related entities).
This limitation is particularly important in the case of business aircraft that are financed. After the three-year grace period during which depreciation is not deducted in calculating adjusted taxable income, this limitation will become even more relevant to business aircraft.
The CARES Act increases the interest deduction limit from 30% of adjusted taxable income to 50% of adjusted taxable income in 2019 and 2020. This temporary increase in the limitation provides some relief to owners of business aircraft. (Taxpayers can elect out of this increased deduction limit.)
There is an exception to this temporary relief in the case of partnerships (although not for S corporations). While the 50% limit applies to partnerships in 2020, it does not apply to partnerships in 2019. Instead, a special limitation applies to partnerships in 2019. Under the special rule, the 30% limit applies, and if the partnership has any excess business interest expense, 50% of the excess is allowed as deductible business interest in 2020 (unless the partner elects out of this special rule). The other 50% of excess business interest is carried over like other excess business interest.
Taxpayers can also elect to use their 2019 adjusted taxable income to calculate their business interest deduction limitation for 2020. This special rule provides some relief for taxpayers whose taxable income decreases in 2020.
Net Operating Losses (CARES Act § 2303; I.R.C. § 172)
Owners of business aircraft may incur Net Operating Losses (NOLs), particularly due to large depreciation deductions. Under the TCJA, effective generally with respect to NOLs arising in 2018 or subsequent years, NOLs could only be carried forward (not back) and could be deducted against only 80% of taxable income in future years. Under the CARES Act, these limitations are temporarily relaxed.
Under the CARES Act, NOL carryforwards can offset 100% of taxable income in 2020 or earlier years. In 2021 and later years, taxpayers can deduct: (1) NOL carryforwards arising in 2017 and earlier years against 100% of their taxable income (because the TCJA 80% limit did not apply to NOLs arising in 2017 and earlier years), and (2) NOL carryforwards arising in 2018 and later years against up to 80% of their taxable income. Also under the CARES Act, NOLs arising in 2018, 2019, and 2020 can be carried back 5 years. Allowing NOL carrybacks can be particularly valuable to corporations in view of the higher corporate income tax rates prior to 2018.
Excess Business Losses (CARES Act § 2304; I.R.C. § 461(l))
Beginning in 2018 under the TCJA, individuals’ deductions of net business losses were limited to $250,000 for single taxpayers and $500,000 for married taxpayers. Their excess business losses were carried forward as NOLs. In the case of partnerships and S corporations, this loss limitation was imposed at the partner or shareholder level. The business losses subject to this rule included active trade or business losses and any otherwise allowed passive losses.
This provision can be especially important to business aircraft owners who incur large depreciation deductions that result in business losses. However, since excess business losses were carried forward as NOLs, and as NOLs they were not subject to the excess business loss limit in future years, the limitation on excess business losses often resulted in only a one-year delay in the deduction.
Nevertheless, the excess business loss limitation was problematic for taxpayers who reported large capital gains from the sale of a business in the same year that they incurred large business losses from depreciation deductions on aircraft. In that situation, the excess business loss from aircraft depreciation would result in NOL carryforwards to future years, which may not be deductible if the taxpayer had no significant business income in future years.
Under the CARES Act, the excess business loss limitation is retroactively amended so that it does not apply in 2018, 2019, and 2020. Instead, it first applies in 2021.
The CARES Act also made changes to the excess business loss calculation, which will become relevant when the limitation applies in 2021. The calculation of net business losses that could be taken into account under the TCJA appeared to include salaries and wages income, but the CARES Act clarifies that such income is excluded from the calculation. In addition, the CARES Act clarifies that gains from sales of capital assets are only included if such gains are attributable to a trade or business, and losses from sales of capital assets are excluded entirely.
Acknowledgements: NBAA thanks Tax Committee member John B. Hoover for contributing this article for the benefit of members. Hoover is a partner with NBAA member Holland & Knight, LLP, specializing in business aviation tax matters. He can be reached at 703-720-8606 or by email.
This article was originally published by NBAA on April 2, 2020.
CARES Act: The Treasury Department's $500B Coronavirus Economic Stabilization Act Program see more
NAFA members, Christopher J. Armstrong, Kara M. Ward, and Joel E. Roberson, with Holland & Knight, share information on the CARES Act.
President Donald Trump on March 27, 2020, signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), providing $2.2 trillion of emergency appropriations. The CARES Act provides a wide range of economic relief for businesses of all sizes, tax relief for individuals and businesses, enhanced unemployment insurance for individuals and other policies that are summarized here.
This Holland & Knight alert outlines the CARES Act's "Coronavirus Economic Stabilization Act" (CESA) found in Title IV. Title IV authorizes $500 billion to the U.S. Department of the Treasury's Economic Stabilization Fund in an effort to provide businesses, states and municipalities access to sources of liquidity in order to maintain solvency during the coronavirus (COVID-19). Title IV also provides significant housing related relief and restrictions, as well as relief to financial institutions, which will be summarized in a future update.
In Section 4003, CESA authorizes the Treasury Secretary to use $500 billion to backstop one or more Federal Reserve programs and lending facilities as well as provide direct loans and facilitate private lending through the strategic use of guarantees to aviation, national defense industries and businesses generally. CESA provides for the following division of these funds:
- $454 billion in loans for qualifying businesses, states and municipalities
- $25 billion in loans and loan guarantees for passenger air carriers and eligible businesses that are approved to perform inspection, repair, replace or overhaul services that are related to passenger air service, and ticket agents
- $4 billion in loans and loan guarantees for cargo air carriers
- $17 billion in loans and loan guarantees for businesses critical to maintaining national security
The $454 billion listed above is for programs or facilities established by the Board of Governors of the Federal Reserve System (the Federal Reserve) to inject liquidity into the financial system to support lending to eligible businesses, states or municipalities. The Treasury Secretary is given broad authority to determine the terms of the transactions subject to several guideposts in the statute regarding limitations and eligibility.
Limitations on Executive Compensation
For recipients of funds under both Sections 4003 and 4112, discussed below, there are special rules on employee compensation that apply. These requirements are set forth in Sections 4004 and 4116, and cross-referenced to apply to the $454 billion for other eligible businesses in Section 4003(c)(3)(A)(III).
- No officer or employee earning more than $425,000 in 2019, can receive 1) pay increases or 2) severance upon termination of employment exceeding twice the maximum compensation received in 2019 (for funds under Section 4003, this requirement is from the date the agreement is executed until one year after the loan or loan guarantee is no longer outstanding; for funds under Section 4412, this requirement is from March 24, 2020, to March 24, 2022); and
- No officer or employee whose 2019 total compensation exceeded $3 million may receive total compensation in excess of $3 million and 50 percent of the excess over $3 million that they received in 2019, including salary, bonuses, awards of stock and other financial benefits.
Special Terms for Businesses, States and Municipalities
As noted above, CESA includes $454 billion in funds to establish a program to inject liquidity into the financial system that supports lending to eligible businesses, states and municipalities. Should one of the implementing programs include direct lending to businesses, the recipient businesses must agree to the following terms that will be in effect for the term of the loan plus 12 months:
- neither the business nor any affiliate may engage in stock buy-backs unless it is under a preexisting contractual obligation to do so, and
- the business may not pay dividends or make other capital distributions with respect to common stock
CESA also provides that the Treasury Secretary "shall endeavor" to implement a program within the $454 billion that provides financing to banks and other lenders that make direct loans to eligible businesses, including nonprofits with between 500 and 10,000 employees, with an annualized rate not higher than 2 percent. For the first six months of financing under this program, no principal or interest shall be due. While it is not yet clear how this program will contrast with the wider loans, loan guarantees and financing generally available to businesses, CESA details the following required good-faith certifications:
- the loan is necessary for ongoing operations of the recipient
- any funds received will be used to retain at least 90 percent of the recipient's workforce until Sept. 30, 2020
- the recipient must intend to restore not less than 90 percent of its workforce that existed on Feb. 1, 2020, no later than four months after the current crisis
- the recipient is domiciled in the U.S., with significant operations and employees in the U.S.
- the recipient is not in bankruptcy
- the recipient will not pay dividends with respect to common stock, or buy-back shares during the term of the loan
- the recipient will not outsource or offshore jobs for the term of the loan and two years after completing repayment
- the recipient will not abrogate existing collective bargaining agreements during the term of the loan and two years after completing repayment, and
- the recipient will remain neutral in any union organizing effort for the term of the loan
It is important to note that, given the discretionary language of the provision, it remains unclear the degree to which the administration will choose to implement these terms.
Aviation and National Security Industry Programs
With regard to support for the aviation industry, the CARES Act includes more direction to the Treasury Department in establishing a program as compared to other sections of the bill. Included in the aviation specific sections of the CESA are grants to cover employee salaries as well as loans and loan guarantees.
Special Loan Terms for Air Carriers, Cargo Air Carriers and National Security Business
These categories of borrowers have a special set of requirements under the new law, which requires the Treasury Secretary to make the following determinations regarding loans and loan guarantees:
- credit is not otherwise reasonably available to the recipient at the time of the transaction
- the obligation is prudently incurred
- the loan or loan guarantee is sufficiently secured, or is made at a rate that reflects risk and, to the extent practicable, is not less than the interest rate based on market conditions of comparable obligations prior to the COVID-19 outbreak
- the loan or loan guarantee is for as short as practicable, and not longer than five years
- for the length of the loan or loan guarantee plus 12 months, neither the business nor any affiliate may engage in stock buy-backs
- for the length of the loan or loan guarantee plus 12 months, the business may not pay dividends or make other capital distributions with respect to common stock
- until Sept. 30, 2020, the business must maintain its employment levels as of March 24, 2020, to the extent practicable, and in no case can reduce its employment levels by more than 10 percent from that date
- a business must certify that it is created or organized in the U.S. and has both significant operations and a majority of its employees based in the U.S., and
- for the purpose of these loans or loan guarantees, the business must have incurred or is expected to incur covered losses such that continued operations are in jeopardy, as determined by the Treasury Secretary
Furthermore, all air carriers, cargo air carriers and national security businesses that benefit from the financial assistance under CESA must also do the following, as directed by the Treasury Secretary:
- provide the Treasury Department with a warrant or equity interest if the recipient issues securities on a national exchange, or
- provide the Treasury Department with a warrant, other equity interest or senior debt instrument
Employee Retention Grants
In Section 4112, CESA also provides direct relief for aviation workers in the form of grants, which are available solely for the continuation of payments of employee wages, salaries and benefits, including:
- $25 billion for passenger air carriers, in an amount equal to the salaries and benefits reported by the carrier to the U.S. Department of Transportation from April 1 through Sept. 30, 2019;
- $4 billion for cargo air carriers, in an amount that the carrier certifies, using sworn financial statements or other data, as the amount of wages salaries, benefits and other compensation paid from April 1 through Sept. 30, 2019, and
- $3 billion for related contractors, in an amount that the carrier certifies, using sworn financial statements or other data, as the amount of wages salaries, benefits and other compensation paid from April 1 through Sept. 30, 2019
For carriers and contractors accepting funds under the payment of wages, salaries and benefits to aviation workers outlined above, the recipient must comply with the following additional requirements:
- refrain from conducting involuntary furloughs or reducing pay rates and benefits until Sept. 30, 2020
- cannot engage in stock buy-backs or pay dividends or make other capital distributions through Sept. 30, 2020, and
- cannot be required by the federal government to enter into negotiations with labor representatives regarding pay or other terms and conditions of employment
The Treasury Secretary is required to publish streamlined and expedited procedures not later than April 1, 2020, and initial payments are to be made by April 6, 2020. The section also requires related audits and clawback of any financial assistance should the recipient fail to honor assurances, and also authorizes the Secretary of Transportation to require that the carrier maintain scheduled air transportation service as deemed necessary through March 1, 2022, with consideration of the needs of remote communities and the healthcare supply chain.
Main Street Lending Program
Finally, CESA permits, but does not require, the Board of Governors of the Federal Reserve to establish a "Main Street Lending Program," or other similar program or facility under its own unilateral authorities (without the federal backstop provided by the Treasury Department's Economic Stabilization Fund), to support lending to small and mid-sized businesses.
DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact the author or your responsible Holland & Knight lawyer for timely advice.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.
This article was originally published by Holland & Knight on March 30, 2020.
COVID-19 Upends the Air Transport Market see more
NAFA members, Anita M. Mosner and Ben Slocum with Holland & Knight, share an overview of Aviation Provisions in the CARES Act and other federal responses.
- The 2020 Coronavirus Air, Relief, and Economic Security (CARES) Act includes mechanisms to provide economic relief to air carriers, airports and airline contractors during the COVID-19 crisis.
- The U.S. Department of the Treasury has issued guidelines concerning the allocation of relief to affected industries, and the U.S. Department of Transportation has started to issue guidance concerning carriers' air service obligations.
- The sector has been granted other relief, such as waivers of the Federal Aviation Administration of airport slot usage rules, and temporary relief from the requirement to collect and remit excise taxes. These items are applicable to both U.S. and foreign carriers.
The COVID-19 pandemic has had a vast and severe impact on the U.S. economy, and the U.S. air transportation industry has been brought almost to a standstill. While the executive branch moved quickly to address immediate operational challenges, such as waiving slot usage requirements at congested airports,1 the industry looked to Congress to provide financial relief.
On Friday, March 27, 2020, Congress passed and the president signed the 2020 Coronavirus Air, Relief, and Economic Security (CARES) Act. This law authorizes more than $2 trillion in government spending to address a broad range of economic, health and social challenges. Notably, the measure includes mechanisms to provide economic relief to air carriers, airports and airline contractors during the COVID-19 crisis.2 This summary examines the relief measures provided by the CARES Act to each of these industry sectors.
The U.S. Departments of the Treasury and Transportation (DOT) will be overseeing the allocation of relief under this statute. The Treasury Department has issued guidelines concerning the allocation of relief to affected industries,3 and the DOT has started to issue guidance concerning carriers' air service obligations, described below.
The CARES Act provides three types of direct economic benefits to air carriers:
- Loans and loan guarantees
- Grants to pay employee wages, salaries and benefits
- Tax holidays
Each of these are addressed below.
Loans and Loan Guarantees
For a carrier to be eligible for a loan, the Treasury must determine that: i) credit is not reasonably available to the carrier at the time of the transaction; ii) the applicant's intended obligation is prudently incurred; iii) the loan is sufficiently secured or made at a rate that accurately reflects the risk of the loan; and iv) the losses the carrier has incurred, or is expected to incur, place the continued operation of the business in jeopardy.6 The application procedures to obtain a loan will be published by the Treasury no later than April 6, 2020.
Section 4003 of the CARES Act imposes several restrictions on carriers receiving loans from the government, which must be included in the loan agreement between the carrier and the government (i.e., the loans come with "strings" attached).
- The loan must be as short as practicable, and in no event longer than five years.
- The carrier may not buy back its own stock, or pay dividends or capital distributions to holders of its common stock, until 12 months after the loan is repaid.
- Until Sept. 30, 2020, the carrier must, to the extent practicable, maintain the same employment levels as it had on March 24, 2020, and under no circumstances reduce its employment levels by more than 10 percent from its March 24, 2020, levels.
- In exchange for the loan, the government receives a warrant for stock or an equity interest in the carrier, which can appreciate, be sold or exercised for the benefit of U.S. taxpayers.
- Carrier officers and employees whose total compensation7 exceeded $425,000 in 2019 are subject to compensation limits until 12 months after the loan is repaid.8
- The DOT may require the carrier to continue scheduled air service through March 1, 2022, to any point the carrier served before March 1, 2020. In determining whether to exercise this authority, the DOT must consider the transportation needs of small communities, as well as the need to maintain functioning medical and pharmaceutical supply chains.9 The DOT has issued an order that sets forth its interpretation of this requirement.10
All Loans to carriers will be made public by the Treasury within three days of the transaction.
Grants to Pay Employees
The CARES Act makes available an additional $29 billion for the government to provide grants of financial assistance to carriers for the sole purpose of paying employee wages, salaries and benefits during the COVID-19 crisis. Of this amount, $25 billion in Carrier Grants are available for U.S. passenger air carriers, and $4 billion in Carrier Grants are available for U.S. cargo air carriers.11
A business that is approved to receive a Carrier Grant will receive a total amount equivalent to the salaries and benefits they paid from April 1, 2019, through September 30, 2019;12 and will receive an initial payment no later than April 6, 2020. The Treasury published its guidance and procedures for requesting a Carrier Grant on March 30, 2020.13 Notably, this guidance recommends that initial applications be submitted no later than 5 p.m. on April 3, 2020, to receive approval as soon as possible. While applications received thereafter will be considered, they may not receive approval as quickly. Applications received after April 27, 2020, may not be considered.14
As with the available loans, the CARES Act imposes several restrictions on Carrier Grants received from the government.
- The carrier may not reduce pay rates or involuntarily furlough employees until Sept. 30, 2020.
- The carrier may not buy back its own stock, or pay dividends or capital distributions to holders of its common stock, through Sept. 30, 2021.
- As compensation for a Carrier Grant, the Treasury may receive warrants, stock options or other debt instruments issued by the carrier.
- Carrier officers and employees whose total compensation15 exceeded $425,000 in 2019 are subject to compensation limits until March 24, 2022.
- The DOT may require the carrier to continue scheduled air service through March 1, 2022, to any point the carrier served before March 1, 2020. In determining whether to exercise this authority, the DOT must consider the transportation needs of small communities, as well as the need to maintain functioning medical and pharmaceutical supply chains.16 The DOT has issued an order that sets forth its interpretation of this requirement.17
Any carrier that fails to honor these restrictions is subject to audits and the clawback of the Carrier Grant provided.18 Furthermore, should the amount of relief requested in the form of Carrier Grants exceed the amount available to passenger air carriers and cargo air carriers, the Treasury may reduce, on a pro rata basis, each Carrier Grant to be awarded.19
For the remainder of 2020, no air carrier excise taxes will be charged by the government. This includes the excise taxes normally charged for the transportation of passengers, transportation of property and purchase of kerosene, in accordance with 26 U.S.C. §§ 4261, 4271, and 4041/4081, respectively.20 Unlike the provisions regarding Loans and Grants, which are limited to U.S. air carriers, this provision applies to both U.S. and foreign air carriers.
Similar to Carrier Grants, the CARES Act makes available $3 billion for the Treasury to provide grants to airline contractors to pay employee wages, salaries and benefits during the COVID-19 crisis.21 The CARES Act defines "contractor" broadly to cover non-airline workers in functions directly related to the air transportation of persons, property and mail. These functions include, but are not limited to: baggage and cargo handling; catering; assisting passengers with disabilities; airport ticketing and check-in; aircraft cleaning, sanitizing and waste removal; and aircraft ground handling; along with any subcontractors employed by a contractor to perform functions directly related to air transportation.22
A business that is approved for a Contractor Grant will receive a total amount equivalent to the salaries and benefits they paid from April 1, 2019, through Sept. 30, 2019;23 and will receive an initial payment no later than April 6, 2020.24 The Treasury published its guidance and procedures for requesting a Contractor Grant on March 30, 2020.25 Notably, this guidance recommends that initial applications be submitted no later than 5 p.m. on April 3, 2020, to receive approval as soon as possible. While applications received thereafter will be considered, they may not receive approval as quickly. Applications received after April 27, 2020, may not be considered.26
As with Carrier Grants, the CARES Act imposes several restrictions on Contractor Grants received from the government.
- The contractor may not reduce pay rates or involuntarily furlough employees until Sept. 30, 2020.
- The contractor may not buy back its own stock, or pay dividends or capital distributions to holders of its common stock, through Sept. 30, 2021.
- As compensation for a Contractor Grant, the Treasury may receive warrants, stock options, or other debt instruments issued by the contractor.
- Carrier officers and employees whose total compensation27 exceeded $425,000 in 2019 are subject to compensation limits until March 24, 2022.28
Any failure by a contractor to honor these restrictions can result in audits and the rescission of the Contractor Grant provided. Furthermore, should the amount of relief requested in the form of Contractor Grants exceed the $3 billion available to contractors, the Treasury may reduce, on a pro rata basis, each Contractor Grant to be awarded.
The CARES Act provides a supplemental appropriation of $10 billion for airport grants-in-aid "to prevent, prepare for, and respond to coronavirus."29 This $10 billion is 100 percent federal share (i.e., there is no local matching requirement), will remain available until it is expended, and will be distributed as follows:
- $500 million will fund the required local shares of airports under fiscal year (FY) 2020 Airport Improvement Program (AIP) grants
- $7.4 billion will be given to airports to use for any lawful purpose; the money will be awarded to airports using the following formulas:
- Half of this amount ($3.7 billion) will be distributed among all commercial airports based on each airport sponsor's 2018 enplanements as a percentage of 2018 total enplanements across all commercial airports
- Half of this amount ($3.7 billion) will be distributed among all commercial airports by reviewing each airport sponsor's FY 2018 debt service as a percentage of the combined debt service of all commercial airports, as well as each sponsor's ratio of unrestricted reserves to their debt service
- $2 billion will be given to airports to use for any lawful purpose and will be distributed through the AIP entitlement formula
- $100 million will be apportioned directly among general aviation airports to use for any lawful purpose
The CARES Act's supplemental appropriation also applies two restrictions to airports receiving the funds. First, any airport development projects using CARES Act funds must comply with the prevailing wage requirements already codified in 49 U.S.C. § 47112. Second, any airport receiving CARES Act funds must continue to employ through Dec. 31, 2020, at least 90 percent of the number of individuals it employed on March 27, 2020.30 However, the DOT may waive this second restriction if it determines that the employment requirement is either causing economic hardship, or reducing aviation safety or security.31
Finally, in a separate supplemental appropriation, the CARES Act provides $100 million to the Transportation Security Administration (TSA) to clean and sanitize security checkpoints and airport common areas, pay overtime and travel costs of TSA employees, and obtain explosive detection materials.32
The Holland & Knight Aviation Team is continually monitoring the impact of COVID-19 on the aviation sector. Our attorneys can assist with questions concerning eligibility for relief programs and changes in the regulatory landscape.
DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the author of this alert for timely advice.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.
1 FAA Notice of Limited Waiver of the Minimum Slot Usage Requirements, 85 Fed. Reg 15019-20 (Mar. 16, 2020) (waiving minimum slot usage requirements for all carriers at JFK, LGA, and DCA through May 31, 2020).
2 These mechanisms appear in Title IV of the CARES Act, known as the “Coronavirus Economic Stabilization Act”, which appropriates $500 billion to provide aviation and other businesses, states, and municipalities access to liquidity in order to remain solvent during the COVID-19 crisis.
3 Procedures and Minimum Requirements for Loans to Air Carrier and Eligible Businesses and National Security Businesses under Division A, Title IV, Subtitle A of the Coronavirus Aid, Relief, and Economic Security Act (March 30, 2020) and Guidelines and Application Procedures for Payroll Support to Air Carriers and Contractors under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief, and Economic Security Act (March 30, 2020).
4 Maintenance stations certified under 14 CFR Part 145 are also eligible.
5 § 4003(b)(1) and (2). All references are to sections within the CARES Act unless otherwise specified.
6 § 4003(c)(2)(A), (B), (C), and (I).
7 "Total compensation" includes salary, bonuses, awards of stock, and other financial benefits received.
8 § 4004(a). These employees are capped at their 2019 compensation levels until this restriction expires. A more restrictive formula applies to employees whose total compensation exceeded $3 million in 2019.
9 § 4005.
11 § 4112(a).
12 This figure will be determined using the data reported to DOT pursuant to 14 CFR Part 241. (§ 4113(a)(1)).
13 Guidelines and Application Procedures for Payroll Support to Air Carriers and Contractors under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief, and Economic Security Act (March 30, 2020)
14 Id, p. 5.
15 "Total compensation" includes salary, bonuses, awards of stock, and other financial benefits received.
16 § 4114(b).
18 § 4113(b).
19 § 4113(c).
20 § 4007.
21 § 4112(a)(3).
22 § 4111(3). In practice, these are functions airlines usually employ third-party service providers to perform because it is more cost effective than hiring their own employees to perform them.
23 This figure will be determined using sworn financial statements from the contractor. (§ 4113(a)(3)).
24 § 4113(a) and (b)(2).
25 Guidelines and Application Procedures for Payroll Support to Air Carriers and Contractors under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief, and Economic Security Act (March 30, 2020).
26 Id, p. 5.
27 "Total compensation" includes salary, bonuses, awards of stock, and other financial benefits received.
28 § 4116(a). These employees are capped at their 2019 compensation levels until March 24, 2022. A more restrictive formula applies to whose total compensation exceeded $3 million in 2019.
29 CARES Act, Division B – Emergency Appropriations for Coronavirus Health Response and Agency Operations, Federal Aviation Administration, Grants-In-Aid for Airports, H.R. 748-316.
30 Id at H.R. 748-317. Adjustments are made for voluntary employee separations and retirements.
31 Id at H.R. 748-317.
32 CARES Act, Division B – Emergency Appropriations for Coronavirus Health Response and Agency Operations, Federal Aviation Administration, Grants-In-Aid for Airports, H.R. 748-316.
This article was originally published by Holland & Knight on April 1, 2020.
Trump Administration Eliminates People-to-People Travel to Cuba see more
NAFA member Holland & Knight discusses changes in regulations that will have major effects on private aircraft and vessels, including cruise ships.
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce's Bureau of Industry and Securities (BIS) announced changes to the Cuban Assets Control Regulations (CACR) and the Export Administration Regulations (EAR), respectively, that partially implement the U.S.-Cuba policy recently announced by the Trump Administration. The changes are effective as of June 5, 2019. Key impacts include the following:
Except for certain travelers who have already booked travel, OFAC has ended the authorization that allowed travel to Cuba under the People-to-People (P2P) travel general license.
BIS has terminated an export exception that allowed private/corporate aircraft to depart the U.S. for Cuba (operations that are now prohibited). This does not affect commercial airlines, air-taxi operators and air ambulance operators engaged in commercial operations to Cuba.
BIS has terminated an export exception for private and commercial vessels, including cruise lines, to depart the U.S. for Cuba (operations that are now prohibited). Effectively, only vessels carrying authorized cargo (such as agricultural commodities) are now allowed. Notably, earlier announcements made by the Trump Administration on April 17, 2019, did not provide any warning regarding the ending, in practical terms, of cruise lines' ability to operate in Cuba.
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce's Bureau of Industry and Securities (BIS) on June 4, 2019, announced changes to the Cuban Assets Control Regulations (CACR) and the Export Administration Regulations (EAR), respectively. Both agencies also updated their respective frequently asked questions (FAQs) explaining the amendments, which take effect on June 5, 2019.
These amendments implement one aspect of the U.S.-Cuba policy announced by the Trump Administration on April 17, 2019: the restriction of non-family travel through the elimination of the P2P travel category (part of the educational travel authorization). However, the changes taking effect on June 5, 2019, do not restrict any other travel category and do not limit money remittances to Cuba or end the use of "U-turn" transactions. It is possible that additional changes to the U.S.-Cuba regulations addressing these matters may be implemented in the near future.
On the other hand, the new amendments go beyond what was announced by both U.S. Secretary of State Mike Pompeo and National Security Advisor John Bolton on April 17 because they include an unexpected prohibition on the "exportation" to Cuba (i.e., temporary transportation from the U.S. to Cuba) of most commercial and private vessels (including cruise ships) as well as of private and corporate aircraft. Such change has an immediate, detrimental impact on U.S. cruise lines operating in Cuba.
This Holland & Knight alert discusses the June 5 amendments to the U.S.-Cuba sanctions regulations as well as their practical effects on U.S. individuals and companies.
People-to-People Travel Category Completely Eliminated
The general license under Section 515.565(b) of the CACR that authorized U.S. persons to travel to Cuba under the group P2P travel category is eliminated. Group P2P travel consisted of educational exchanges not involving academic study pursuant to a degree program that was organized under the auspices of an organization that is a person subject to U.S. jurisdiction and that sponsors such exchanges to promote people-to-people contact. This sub-category of authorized travel was part of the Educational Activities broader category under Section 515.565 of the CACR. The "individual" P2P (not requiring to be organized by an organization that is a person subject to U.S. jurisdiction) had been eliminated as of Nov. 9, 2017.
Effective June 5, 2019, any P2P travel (both individual and group P2P) needs to be authorized by OFAC under a specific license. However, OFAC FAQ No. 16 sets forth that OFAC will apply a policy of denial with respect to applications for a specific license requesting authorization for people-to-people travel and related transactions.
Those individual travelers who have completed at least one travel-related transaction (such as purchasing a flight or reserving accommodation) prior to June 5, 2019 will be grandfathered in and, therefore, remain authorized to complete that specific travel. This temporary exception also covers the P2P "sponsoring organizations" to the extent that the proposed travel falls within the scope of the grandfather provision for group people-to-people educational travel. Under these conditions, the P2P sponsoring organization may proceed with sponsoring such travel without applying to OFAC for a specific license.
The Ability of Certain Vessels and Aircraft to Operate in Cuba Has Been Eliminated
Under Section 515.572 of the CACR, carriers are still authorized to provide carrier services to, from or within Cuba in connection with authorized travel or transportation, of persons, baggage or cargo. However, effective June 5, 2019, certain carrier services transactions – all of which depend on the ability of the carrier to temporarily export the vessel or aircraft from the U.S. to Cuba (this constitutes an "export" under the EAR) – will require an additional, separate authorization from BIS, an authorization that is subject to a general policy of denial.
Prior to these new changes, the License Exception Aircraft, Vessels and Spacecraft (AVS) under 15 CFR Section 740.15 of the EAR authorized temporary sojourns to Cuba (i.e., temporary exports of vessels and aircraft) for commercial vessels (cruise ships), private as well as cargo vessels, and commercial, private and corporate aircraft in connection with authorized travel or transportation, of persons, baggage or cargo to Cuba.
Under the new rules:
Effective June 5, 2019, the AVS License Exception will cover only those aircraft operated by licensed air carriers, including air-taxi and air ambulance operations, and cargo vessels, provided all of the terms and conditions of the AVS license exception are met.
Private vessels, commercial vessels (including passenger vessels and cruise ships), and private/corporate aircraft (not operated by a licensed air-taxi operator) are no longer covered by the AVS License Exception under the EAR and, therefore, the respective carriers will require a specific authorization from BIS to temporarily export the vessel or aircraft to Cuba.
In practical terms, this means that starting on June 5, 2019, cruise lines departing from the U.S. will not be able to call on Cuban ports. As stated above, commercial airlines are covered by the AVS License Exception and can continue their operations to Cuba.
Impact and Considerations
For the cruise industry, these changes will have a substantive impact: 1) because the majority of the travelers using the cruises' services to Cuba do so under the group P2P category of travel, where the cruise line is the P2P sponsoring organization, and 2) because even when the other travel categories are still in place and cruise lines can technically carry authorized passengers to Cuba (other than under P2P), they now are required to apply for and obtain a separate authorization from BIS. The likelihood of obtaining such authorization seems to be very low because BIS will look at the request for authorization under a general policy of denial. Even if such authorization is eventually obtained, the process will likely take months and the cruise lines will have already been unable to comply with the contracts they have in place with the Cuban port agent and other local service providers.
To a lesser extent, commercial airlines will also suffer the consequences of the disappearance of the group P2P travel. The greater impact may be on those airlines that fly from cities where there is not a concentration of Cuban-Americans who can travel to Cuba under the still-authorized family visits category.
As the revised regulations are implemented, it is likely that further clarifications – and possibly adjustments – will be necessary.
Holland & Knight's Cuba Action Team
Holland & Knight's Cuba Action Team has dealt with Cuba-related issues for more than 20 years. The Cuba Action Team includes a number of lawyers from the firm's robust Latin America Practice, International Trade Group and Financial Services Practice. We have extensive experience assisting a wide range of U.S. and non-U.S. clients on Cuban trade embargo issues across diverse industries, including airlines, shipping lines, insurers, and agricultural and pharmaceutical companies and organizations. In addition, Holland & Knight has a Cuban licensed/trained lawyer. For more information on how the recently announced changes could impact your organization specifically, contact the authors.
This article was originally published by Holland & Knight on June 5, 2019.