The U.S. Government just signed what is known as the CARES Act, a $2 trillion stimulus package that wants to keep the country running despite the pandemic. This stimulus is especially relevant for the travel industry, where 5.9 million jobs are expected to be lost by the end of April due to COVID-19.
We already talked about how COVID-19 is affecting the Travel industry (and the startups that can help large corporations). In this article, we’re going to talk about the $2T stimulus package, and how businesses of different sizes can benefit from it.
By aggregating sources like The Washington Post, WSJ, Forbes, Fortune and The New York Times, we have compiled the following table, that itemizes the $2.2 trillion stimulus package. To better understand its massive scale, for 2019, total federal spending in the States was $4.4 trillion and total tax revenue was $3.5 trillion.
Within the travel & hospitality industry, airlines are favored, followed by hotels. Cruise lines appear to be excluded from the bill. We’ll see more about these numbers below.
Industry and Large Corporate Loans
Airlines will receive $29 billion in grants and $25 billion in loans. The total amount is aligned with what the U.S. airline industry was seeking. U.S. airlines may be less interested in applying for those loans, as companies that receive such government loans would be subject to a ban on stock buybacks during the term of the loan. On the other hand, all airlines love the grants, which essentially is viewed as direct cash relief for solving payroll issues and saving jobs.
It’s interesting to note that the final bill is not as green as what Democrats had hoped for. Pelosi had demanded airlines receiving aid would have to start offsetting their carbon emissions in 2025 and reduce their overall emissions by 50% by 2050. Unfortunately, the final bill doesn’t include any emissions limits for airplanes.
Boeing will benefit from a category that is set aside for “business-critical to maintaining national security”, the amount of which is $17 billion. Amtrak would get $1 billion to cover coronavirus-related revenue losses.
Small Business Loans
Hotel and restaurant chains with less than 500 employees per location will qualify for treatment as a small business, which means they will receive a loan that is worth 2.5 times the firm’s monthly payroll. As long as these companies use the fund to keep paying employees during the shut-down, the federal government will not ask them to pay back the loan.
The American Hotel & Lodging Association estimates that one million employees across 33,000 hotels will benefit from the above. Employees who work directly for global brands like Marriott and Hilton are not eligible, while those who work for franchised Marriott and Hilton properties are most likely eligible.
Will Startups Benefit from the CARES Act SBA too?
While the $2 trillion stimulus bill has $350 million allocated to businesses with fewer than 500 employees, startups are fearing that they may not qualify after all due to the “affiliation rule”. The affiliation rule applies if a venture firm owns 50% or more of a company’s voting stock or has certain control rights. Furthermore, even if a company has far less than 500 employees, it could be “affiliated” with the thousands of other employees at their investors’ separate portfolio companies.
The National Venture Capital Association (NVCA) emphasizes that “ownership” and “control” are key elements in whether or not your startup will qualify for the SBA. “Close analysis of the positive and negative controls that the VC firm enjoys in the investment and governing documents of the company will be necessary in determining whether the VC’s minority position triggers affiliation”, states the NVCA. Take a look at the NVCA’s guide on SBA loans for startups. Essentially, the U.S. government will need to provide more transparency and act quickly so startups can even know if they qualify and plan accordingly. Without any support, this could be catastrophic for the U.S. startup ecosystem.
Business Tax Cuts
U.S. airlines will receive a reprieve from paying 3 major excise taxes, including the price of a passenger ticket, fuel tax, and cargo tax.
Hotels and restaurants will get a tweak to federal tax law that could save the industry $15 billion. Specifically, these companies will be able to immediately deduct from their taxes what they spent on property improvement and renovation in the past two years, compared to having to take the deduction over the next 37 years.
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