Spirit Airlines Is Asking The Trump Administration For A Taxpayer Bailout To Avoid Shutting Down

Spirit Airlines, on the verge of halting operations in its second bankruptcy in a year, has asked the Trump Administration for a taxpayer-funded bailout.

According to The Air Current, Spirit has asked for “hundreds of millions of dollars in emergency funding” as it works to forestall liquidation. The ultra-low cost carrier segment has especially struggled, and The Air Current further reports that Secretary of Transportation Sean Duffy will meet “executives from several low-cost carriers…early next week” at DOT’s request.

There is no plausible actual legal path for the Department of Transportation or Treasury to offer a bailout, but in this administration there have been a lot of changes about what it means for something to be provided for in law.

• The government has bailed out airlines before. After 9/11, the Air Transportation Safety and System Stabilization Act paid out $4.6 billion to more than 400 air carriers.

  Then the Air Transportation Stabilization Board mostly provided loan guarantees to recipients including America West, US Airways, American Trans Air, Aloha Airlines, and Frontier.

  At the outset of Covid, the CARES Act (and then two subsequent rounds of additional payroll support) provided $54 billion in direct grants and $25 billion in subsidized loans to U.S. airlines, plus tax relief and funding for contractors.

  Spirit received $754 million in direct payments from taxpayers during Covid.

• But no legislation allows this now – and none is likely forthcoming. These programs, though, were specifically created by Congress. There is no legislation in place that would allow for a Spirit bailout at this time.

  Any commitment to Spirit would need to come quickly. And Congress is unlikely to act quickly, if it were to act at all. The House of Representatives is virtually evenly split between parties. Spirit isn’t considered too big to fail. There’s going to be little urgency in Congress, unless the President were to make it urgent, and then it would have oppositon from Democrats.

  While an airline failing during the Trump administration, which some observers would blame on fuel prices (unfairly – they haven’t had a viable business plan in either of their bankruptcies), would reflect badly on the President, the economy and foreign policy, it would also be laid at the feet of the Biden Department of Justice which blocked JetBlue from acquiring the troubled carrier.

• DOT doesn’t have the tools to hand out large subsidies to a single airline. DOT can offer War Risk insurance when private coverage is unavailable on reasonable terms. The Essential Air Service program subsidizes flights to eligible communities. The Small Community Air Service Development Program can fund revenue guarantees, marketing, startup costs, and studies. And the Air Carrier Incentive Program lets airpors offer promotional incentives to attract service. Available authorized, uncommitted funds are too small and restricted to be of assistance.

• If they really wanted to shoehorn this, what would they do? The Exchange Stabilization Fund allows the Treasury to deal in “gold, foreign exchange, and other instruments of credit and securities,” but only consistent with U.S. obligations in the IMF on orderly exchange arrangements and a stable system of exchange rates. This is largely foreign country bridge loans, the 2008 money market guarantee early in the financial crisis, and support in 2020 for Federal Reserve emergency lending facilities.

  Then Treasury Secretary Tim Geitner was explicit that this authority does not permit investing in a failing private company.

  The Trump administration has taken stakes in other companies – but those have used specific authorized programs, like the Commerce Department’s semiconductor incentives program. The Treasury’s Exchange Stablization Fund has never been used for anything like this, and there’s really not a good argument that it legally could be.

  But that doesn’t mean the administration wouldn’t do it, claim the legality was just murky enough, and ask who’s going to stop me? With some hand waving the administration might send out money and then just say “sue us.” Spirit will have continued operating (and perhaps lost the money) by the time courts intervened.

At some level the entire point of an ultra-low cost carrier is low costs to consumers, and so taxpayer subsidies wipe out the very argument for Spirit’s existence.

Selective aid distorts competition. The major problem airlines are facing is fuel, having chosen not to hedge risk. Chapter 11 is already a mechanism for dealing with this. The planes, pilots and gates do not disappear and consumer demand has remained robust. And bailouts are of creditors and stockholders, not mostly passengers.

As The Air Current notes, J.P. Morgan’s Jamie Baker told investors on Thursday that if the administration gave a bailout to Spirit, that Frontier and JetBlue would immediately line up for handouts as well. JetBlue’s CEO has been arguing that government should tilt things in her airline’s favor already.

And Baker notes that if the government gave handouts to JetBlue and Frontier, “would American be far behind?” American’s last CEO made a carrier off of government bailouts – from securing one at America West, taking over US Airways which had just received one, and acting as the primary industry lobbyist for the $54 billion achieved during the pandemic. Of course American’s issue is not solvency, it’s financial underperformance.

Spirit’s story though has little to do with fuel. They haven’t had a viable business, and their business has a terrible reputation. If this were a viable business there would be investors for it.