A couple of readers have asked me for a simple summary of the reasons it’s a bad idea for the federal government to offer another round of payroll support funding. This will duplicate much of what I’ve already written, but in a manner that might be more easily shared with legislators and opinion leaders.
The federal government picked up the tab for a majority of airline payrolls during the pandemic, but that money runs out September 30. The argument initially was this would be a bridge to recovery, and it was important to keep workers attached to their airlines so they would be ready to support economic recovery once Covid-19 was over. Now we know, though, that the pandemic will have longer-lasting effects, airlines won’t need all of their employees again for several years, and they’ve already started to shrink their payrolls.
Here are 9 reasons why another round of payroll support grants – which has the public backing of much of Congress – is a bad idea for the country and even for the airlines themselves.
- Unnecessary. Southwest Airlines says they won’t furlough anyone this year anyway, why would we give Southwest another $3.3 billion for its payroll?
- Too late. Airlines have already separated with workers, with around 30% of non-union staff already gone at the largest carriers. This package is too late to preserve old employment levels, yet still would mean giving airlines money based on their old payroll amounts.
- Too much money. American Airlines told employees that federal grants covered about three-fourths of payroll. American was never going to lay off 75% of its workforce. We know now they’re looking at around a third, and the rest was a subsidy to their operations.
- Too easy to abuse Airlines scammed the program last time. Why would we do a ‘clean extension’ giving them the same terms again? The program required that nobody could be laid off or have their pay rates reduced, so airlines assigned fewer hours and imposed unpaid leaves in order increase the amount of federal money they could use to cover expenses they’d be incurring anyway. Smaller airlines even double dipped on both payroll support grants and PPP forgivable payroll support loans.
- Subsidy for airline investors. Since airlines have been getting more money than they’d have saved on layoffs they are actually planning, the balance is a subsidy to shareholders under the guise of helping workers. Shareholders should take a haircut on airlines before taxpayers and certainly before taxpayers have to ante up a second time.
- Ineffective. Airlines are going to be smaller going forward no matter what Congress does. American Airlines CEO Doug Parker gave internal remarks offering that best case his airline is 10% – 20% smaller next year if there’s a vaccine “and no one even remembers what coronavirus means” while industry trade group IATA says it’ll be 2024 before air travel fully recovers. Extending payroll to March isn’t a bridge to recovery.
- Simply sets up for payroll bailout #3. Since airline demand won’t fully return by the end of March offering six more months of payroll support is a false promise – if it makes sense to invest $25 billion more now, then the same arguments will just come back before this round of funding expires.
- Bad for the economy. Since airlines are going to be smaller, it’s better for employees to move on to somewhere else sooner where they will be productive rather than staying attached to zombie firms who have no way to fully utilize their employees. Delaying this transition, having employees sit idle and unproductive, simply delays economic recovery.
- Bad for the airlines. Letting airlines shrink, and even fail, is better than keeping all of them around with too much capacity hobbling the entire industry and delaying all of the airlines’ recovery. When the government picks up payroll costs, that makes adding flights much less expensive which holds down fares and makes it tougher for airlines to recover.
Mere months ago the CEOs of Delta, United, and American were publicly arguing that it’s dangerous to have the government backstopping aviation. Now, already, U.S. airlines have been partially nationalized – with the Treasury Department taking warrants in the larger carriers, not just offering unprecedented subsidies. There’s no longer any illusion that we have ‘private’ air carriers in this country. But going further down this road is counterproductive and a waste of funds.