WASHINGTON/CHICAGO (Reuters) - U.S. lawmakers are nearing agreement on a $61 billion rescue package for the aviation sector that would include $25 billion in payroll grants for passenger airlines weathering a sharp falloff in travel demand amid rising coronavirus outbreaks, three people briefed on the matter said.

Slideshow ( 2 images )

The deal, which still needs final approval from lawmakers, is also expected to include $4 billion in grants for cargo carriers and $3 billion for contractors like caterers to cover payroll costs, as well as another $29 billion in loans.

The package follows a forceful push by airlines and unions that any aid include grants, rather than just loans as in a preliminary Republican proposal envisioned over the weekend.

Airlines have warned that without cash grants they could be forced to lay off hundreds of thousands of people as U.S. travel demand has collapsed, leaving the airlines without trained staff to jump-start their operations, and the economy, once demand returns.

The aviation package would be part of a $2 trillion U.S. coronavirus economic stimulus package that lawmakers have been debating.

Airline finances have become increasingly stretched as planes fly nearly empty and more people cancel flights than book new ones. S&P downgraded Delta Air Lines' DAL.N credit rating to junk on Tuesday.

“The action by S&P underscores the need for swift relief for airline employees that is currently being considered by the government,” a Delta spokesman said.

Airlines’ argument that grants rather than loans were essential to keep workers on the payroll won the strong backing of House Democrats, who proposed $40 billion in cash grants on Monday.

In a last-ditch effort, airlines offered to keep all workers on board until at least Aug. 31 if they received the grants. That date may be extended by a month in the final bill, said one of the three people familiar with the matter.

Airlines previously agreed to forgo stock buybacks and dividends and limit executive compensation if they won cash grants. It is unclear if U.S. Treasury will be able to demand equity as a condition of the assistance.

U.S. airline stocks were up sharply on Tuesday afternoon on optimism a deal was near. American Airlines Group Inc AAL.O shares were up 30% at $13.32, Delta Air Lines DAL.N jumped 15.8%, United Airlines UAL.O rose 20.4% and JetBlue Airways Corp JBLU.O was up 27.7%.

Other airlines around the world, contemplating months without flying, have also said they need the support of their governments to survive.