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A group of budget airlines is reportedly seeking financial assistance from the federal government that could convert to an equity stake in the air carriers.
The Wall Street Journal reported on Sunday that the group of budget airlines, including Frontier and Avelo, is seeking $2.5 billion in federal assistance through stock warrants that could convert into equity stakes in the airlines, according to people familiar with the matter.
Some of the Journal’s sources told the outlet that the group’s $2.5 billion figure was derived from an estimate of how much they expect to spend on jet fuel this year compared with earlier forecasts, with the estimate assuming jet fuel prices will remain above an average of $4 a gallon for the rest of the year.
Conversations about a possible relief package for budget airlines are reportedly expected to continue in the coming days, according to the Journal’s report. The news follows a reported meeting between the leaders of several budget carriers with Transportation Secretary Sean Duffy and Federal Aviation Administration chief Bryan Bedford last week.
“As the smallest and newest airline in the country, Avelo competes against significantly larger airlines who have unprecedented market dominance,” Avelo Airlines said in a statement to FOX Business. “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 reached out to Frontier Airlines for comment.
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Rising jet fuel prices amid the war in Iran have strained the outlooks for air carriers, who face higher costs than anticipated.
Some air carriers, including larger rivals like United and American, have responded by raising fares and checked baggage fees on consumers.
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Last week, leading budget carriers requested that Congress pass a bill to suspend the 7.5% federal excise tax on airline tickets and the $5.30 per segment tax, which the Association of Value Airlines estimated would offset about one-third of the increased fuel costs.
The group represents Spirit Airlines, Frontier Airlines, Allegiant Air, Sun Country and Avelo.
The budget airlines’ pursuit of federal aid comes as the Trump administration is weighing a separate proposal to provide relief for Spirit Airlines in the form of a $500 million loan that would give the federal government the ability to convert warrants into equity stakes in the airlines.
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The deal would see the federal government 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 bankruptcy this summer, after the budget carrier 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 to prevent mass layoffs during the pandemic.
The federal government ultimately opted against exercising the warrants it acquired and instead sold them in actions that yielded over $550 million.
Reuters contributed to this report.
