UPDATE 5-United warns about COVID-19 surge as U.S. airlines move toward federal loans

(Adds United executive comments at Tuesday employee town hall)

By Tracy Rucinski

CHICAGO, July 7 (Reuters) - The largest U.S. air carriers have all signed letters of intent on federal loans to help them weather the novel coronavirus, with United Airlines warning employees during a virtual town hall meeting on Tuesday that a surge in outbreaks was hitting bookings, threatening a travel rebound.

United is among U.S. airlines encouraging employees to accept voluntary departure packages to help prevent tens of thousands of job losses in the fall. So far, not enough United employees have signed up, sources said following the town hall, with notices of potential furloughs coming soon.

U.S. airline shares were down 5% in late trading..

While travel had picked up in some areas over the past two months from pandemic-driven lows in April, United has seen reservations for travel within the coming month slide after New York, New Jersey and Connecticut said they would require people arriving from hot-spot states to quarantine for 14 days.

Andrew Nocella, United's chief commercial officer, told employees there is no straight line to an industry recovery and that United's network would be slightly more impacted than other U.S. domestic airlines, the sources said.

United sees domestic load factors at around 50% in July versus around 80% normally, with international load around 30%. It is working with its pilots union to mitigate furloughs, the sources said.

Raymond James analyst Savanthi Syth said in an investor note that the bookings trend was likely much broader than the New York area, noting that at least 14 states are requiring out-of-state visitors to undergo a 14-day quarantine.

Delta, which kicks off second-quarter airline results on July 14, said last week it may scale back the number of flights it had planned to add in August due to the surge in COVID-19 cases.

GOVERNMENT AID

U.S. airlines have already received $25 billion in payroll aid under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to protect jobs through September, and are eligible for another $25 billion loan program.

They have until Sept. 30 to decide whether to take the loan, and can furlough or eliminate jobs starting Oct. 1.

U.S. unions representing aviation workers have separately asked lawmakers to extend the payroll aid package through March as Congress considers a new round of spending to address coronavirus-related issues and jobs.

United was among five carriers - along with Alaska Airlines , Delta Air Lines, JetBlue Airways, and Southwest Airlines - that the U.S. Treasury Department said on Tuesday had signed letters regarding the loan terms, which would include the issue of warrants and restrictions on executive compensation and share buybacks.

Last week, the department said it had agreed on the terms for government loans under the CARES Act with five other airlines including American Airlines. (Reporting by Tracy Rucinski in Chicago Additional reporting by Susan Heavey in Washington Editing by Marguerita Choy and Matthew Lewis)