Controversy surrounds Sun Country’s US CARES loan

Low-cost carrier Sun Country Airlines (SY, Minneapolis/St. Paul) will receive another USD45 million in rescue aid under the US government’s Coronavirus Aid, Relief, and Economic Security (CARES) Act. This comes after the Minnesota carrier shelved plans to go public this year because of COVID-19. The US government in a statement confirmed the loan proceeds would be used to prop up Sun Country’s liquidity to enable the airline to continue operating during the current crisis. The Treasury is to fund the full loan, which will be secured by the airline’s loyalty awards programme. It will have an annual interest rate equal to LIBOR (London Inter-bank Offered Rate) plus 3.5% and will mature on October 24, 2025. The Treasury will also receive a 3% payment-in-kind annual interest on the loan in accordance with the CARES Act. The transaction agreement includes covenants by Sun Country to comply with certain restrictions on employee compensation, stock repurchases, dividends, and reductions in employment levels, as required by the CARES Act. Sun Country had applied for the loan in April, and it was approved in late October. The airline already received USD60 million in federal aid under the CARES Act earlier this year, which helped it achieve a small operating profit in 2Q2020. However, the airline has reported a more than 50% decline in revenue year-on-year with travel demand remaining depressed. “In the wake of this unprecedented crisis, our management team has explored every possible avenue to conserve, hold, and access cash in order to ensure a sustainable business for our nearly 1,600 employees and their families while we wait for travel demand and revenue to return,” the company said in a statement to The Washington Post. “Sun Country went through the same vetting process as all other US airlines to determine our qualification for the loan and the size of the loan. Sun Country received less than 10% of its 2019 revenue, the smallest allocation in relation to its revenue among top airlines.” Sun Country is majority-owned by Apollo Global Management, one of the largest alternative asset managers serving many of the world’s most prominent investors. In 2019, Apollo sold a minority share to technology giant Amazon.com, which reported its biggest profit ever during the pandemic. Sun Country operates cargo flights under the Amazon Air brand designed to stabilise revenues during off-peak leisure seasons.