Alaska Air : Payroll Support Program

Payroll Support Program

On April 29, 2021, Alaska Air Group, Inc. (Air Group) and its subsidiaries Alaska Airlines, Inc. (Alaska), Horizon Air Industries, Inc. (Horizon) and McGee Air Services, Inc. (McGee) finalized agreements with the U.S. Department of the Treasury (the Treasury) and accepted partial disbursement of funds through an extension of the Payroll Support Program of the American Rescue Plan Act of 2021 (PSP 3).

Under PSP 3 and the extension agreements entered into, Alaska and Horizon will receive a total of $571 million, and McGee will receive a total of $13 million, to be used exclusively toward continuing to pay employee salaries, wages and benefits. Alaska, Horizon and McGee received $292 million on April 29, 2021, with the remainder expected to be received sometime in May 2021. Of the funds received, $59 million takes the form of a senior term loan with a 10-year term, bearing an interest rate of 1% in years 1 - 5, and SOFR + 2% in years 6 -10. The loan is prepayable at par at any time. As additional taxpayer protection, Air Group granted the Treasury Department 88,395 warrants to purchase Air Group (ALK) common stock at a strike price of $66.39, based on the closing price on March 10, 2021. The warrants are non-voting, freely transferable, and may be settled as net shares or in cash at Alaska's option.

As a condition to receiving PSP 3 funds, Alaska, Horizon and McGee agreed to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2021, and to limit executive compensation and severance through April 1, 2023. Air Group agreed to continue suspension of dividends and share repurchases until September 30, 2022.

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

The information described under Item 1.01 above 'Entry into a Material Definitive Agreement' is incorporated herein by reference.

Other Items

On April 29, 2021, Alaska and Horizon received an additional $80 million in funding from the extension of the Payroll Support Program made available under the Consolidated Appropriations Act, 2021. Funds received are to be used exclusively toward continuing to pay employee salaries, wages and benefits. Of this amount, approximately $23 million will take the form of a senior term loan with a 10-year term bearing an interest rate of 1% in years 1 - 5 and SOFR+ 2% in years 6 -10. As additional taxpayer protection, upon funding of the additional disbursement, Air Group granted the Treasury Department warrants to purchase 45,855 shares of Air Group (ALK) common stock at a strike price of $52.25, based on the closing price on December 24, 2020.