WASHINGTON/CHICAGO (Reuters) - Talks between U.S. airlines and the Treasury Department over how to award $25 billion in cash grants earmarked for payroll assistance due to the coronavirus outbreak were set to continue into the evening Tuesday, people briefed on the matter said.

FILE PHOTO: An airport worker guides a Delta Air Lines Airbus A319-100 plane on the tarmac at LAX in Los Angeles, California, U.S., January 6, 2020. REUTERS/Lucy Nicholson

Airlines and the Treasury have been in talks since last week over what compensation the government will demand as a condition of the grants. Treasury has sought additional information from airlines as the talks have progressed on a formula for determining government compensation, the people said.

The Treasury Department declined to comment on Tuesday.

Treasury Secretary Steve Mnuchin has repeatedly said taxpayers will be “compensated” for the grants and that the assistance is not a “bailout,” while some Democrats in Congress and aviation unions have urged him not to demand equity or warrants.

Under the law, Mnuchin can demand equity, warrants or other financial instruments to “provide appropriate compensation to the federal government.”

Earlier Tuesday, the U.S. Transportation Department finalized minimum service rules for airlines receiving assistance. The department said where multiple airports serve the same point, carriers do not need to maintain service to all of them, which would “impose undue costs.”

The department said its service obligations “are significantly below carriers’ full pre-pandemic schedules” and strike an “appropriate balance between the needs of communities to retain at least minimal connections to the national air transportation system.”

Larger carriers will need to fly at least five times a week on routes where they previously flew at least 25 weekly flights. Smaller carriers will need to fly three weekly flights on routes they previously served at least five times a week.

U.S. airlines have canceled hundreds of thousands of flights and cut millions of seats as travel demand has nearly collapsed.

Southwest Airlines Co LUV.N said on Tuesday it was extending May schedule cuts into June, with overall flight activity dropping by about 50% until June 27.

Treasury is also considering how to award $4 billion in payroll assistance to cargo carriers and $3 billion to airport contractors. It has another $25 billion in loans it can award to passenger carriers and $4 billion in loans for cargo carriers.

American Airlines AAL.O, Southwest, Delta Air Lines DAL.N, United Airlines UAL.O, Spirit Airlines SAVE.N, JetBlue Airways JBLU.O and Alaska Airlines ALK.N are among carriers that have applied for assistance.

On Sunday, RavnAir Group, the largest regional carrier in Alaska, filed for bankruptcy and grounded all of its 72 planes as it waits on a decision on government assistance.