In a leaked video, United Airlines CEO Scott Kirby told employees that they need to lay the groundwork for future government bailouts.
U.S. airlines received $54 billion in direct taxpayer cash during the pandemic, along with $25 billion in subsidized loans, tax relief, and payments to commercial partners that often wound up back in their bank accounts. For instance the subsidies that went to the Dallas – Fort Worth airport mostly translated into lower landing fees for American Airlines.
The airline industry was born in subsidy, totaling hundreds of billions of dollars, and bailouts have come and gone. Twenty years ago Doug Parker’s American West was bailed out by the Air Transportation Stabilization Board and then acquired US Airways which was also bailed out by the ATSB, and Parker went on to lead the effort for a pandemic bailout. The major U.S. airlines claimed to be against bailouts, before they were for them.
Taxpayers were promised that U.S. airlines would use the money to keep all employees on, so that the carriers would be ready to fly when travel returned. Only they didn’t do that. They spent money specifically to encourage employees to terminate their employment. At American they paid pilots to stay home, rather than spending the money to keep them trained. And U.S. airlines didn’t have the staff to support the schedules they wanted to fly to meet customer demand this year.
Still, those same airline CEOs expect to come back for more when the time is right. United Airlines CEO Scott Kirby told employees, in a video recording reported on by Matthew Klint, that airline bailouts will always be there – but unlike during the pandemic, they may not be there for every airline. It’s important to be profitable enough to be at the front of the line for the government trough.
[I]n a crisis, if the crisis is bad enough, history has shown us that national governments all around the world will support their airlines and make sure they can fly through and be there on the other side of the crisis. The reason is because we’re a critical part of the infrastructure and they have to have us. They need us there on the other side.
…there are times that governments will let two or three airlines fail if there’s a crisis because they don’t think they’re going to need all the airlines. So it’s important – it’s the old bear analogy, you want to be faster than the other guy.
In a sense United’s Kirby is just modeling Delta, and not for the first time. Last year Delta Air Lines CEO Ed Bastian, speaking at the Alliance Bernstein 37th Annual Strategic Decisions Conference, argued that airlines are investable because the government will always bail them out. At forty-seven minutes and 59 seconds in, explains:
My hope is that we’ve tested at Delta at least the proposition ‘are airlines investable’ and I think the strong answer is ‘yes they are investable’. And even in the worst crisis imaginable we’ve proven ourselves. We’ve proven the value of what we bring to society. We’ve proven that governments will be there for us if ever needed again, hopefully never again.
In their candid moments the big U.S. airline CEOs know that they spend a lot of money to have good friends in Washington, and when it matters to them the investment will pay off. In those moments events will be moving too quickly for you to do anything about it, either. As former Congressman Jim Moran (D-VA) said about the rush for federal spending after 9/11, “It’s an open grab bag, so let’s grab.”
That’s kind of an unfair characterization to say that they agreed to keep all employees on with the cash and then didn’t do that. It wasn’t enough money to keep all employees forever. Everyone knew this was a stop gap measure to keep staff in place for as long as possible. It just went on way longer than anyone expected. Money runs out. And if you wanted to be completely fair, you should point out that taxpayers would have been on the hook for a lot of that amount anyway if a hundred thousand airline industry workers hit the unemployment roll.
I had an economics professor in college 50 years ago (he later became the chief economist of the Joint Economic Commitee of Congress) who said that business CEO’s hate socialism except when it comes to their getting money or favorable regulations from the government. Proof of the pudding in this posting.
Of all business sectors, commercial aviation is the most adept at keeping its profits private but socializing its losses. Government subsidies may be necessary from time to time, but we should stop writing checks with no strings attached. We have a right to accountability in return for all those taxpayer billions — and the airlines are as unaccountable as they are demanding.
@Rob that is a misguided or misleading framing in the extreme.
“That’s kind of an unfair characterization to say that they agreed to keep all employees on with the cash and then didn’t do that. It wasn’t enough money to keep all employees forever.”
Correct. However,
1. The actual # of employees at risk of furlough when the second bailout was passed was no more than 50,000 for the entire industry. The amount given to the airlines exceeded the amount needed to keep those employees in place at least eight-fold.
2. Keeping everyone in place wasn’t just the argument for the CARES Act bailout but for the second and third payroll bailouts as well.
“And if you wanted to be completely fair, you should point out that taxpayers would have been on the hook for a lot of that amount anyway if a hundred thousand airline industry workers hit the unemployment roll.”
1. There were never 100,000 airline employees at risk of furlough when the second and third payroll bailouts were passed, indeed by the time the third payroll bailout was passed the number was likely zero.
2. Unemployment compensation is a lot less that full salaries for pilots, etc. Many of those would have also been employed elsewhere, not on unemployment — because demand for workers and even airline workers was strong for much of the period on which bailouts lasted.
I’ve seen analyses saying many more were at risk in secondary and tertiary roles, airport workers, local business, airport transfer workers etc. but my purpose was not to challenge your numbers, just the characterization that the funds were taken/deployed in bad faith.
Unemployment for large numbers of skilled workers may not be as high as salary would be, but not if covid went on for 5 more years and nobody knew then that it wouldn’t.
Offering buyouts, early retirement packages and reducing headcount through attrition may result in lower employee numbers, but they are very different than involuntary furlough, that’s why I don’t think you’re being fair.
It’s not like they did that as some kind of loophole exploit to siphon government money. They genuinely had no clue what the right size of the business should be post pandemic, but knew they needed to err on the side of being too small just in case.
@Rob it’s really quite simple. We know how many people were furloughed after the end of PSP1. By the time PSP2 was passed there was interest in bringing some of those BACK. The number of employees at risk at that point was not greater than the number actually furloughed.
And PSP2/3 did nothing for “secondary and tertiary roles, airport workers, local business, airport transfer workers etc”
“my purpose was not to challenge your numbers, just the characterization that the funds were taken/deployed in bad faith.”
1. The notion that the funds were ‘for workers’ was advanced in bad faith, legally the money had to go to payroll but by PSP2/3 it mostly covered payroll the airlines would have been paying anyway. The actual cost to cover the people at risk of furlough was no more than 15% of the amount provided.
2. The argument about keeping people attached to the airline and ‘ready to fly when travel returned’ was bad faith when pilots were paid to stay home and not stay current.
3. American Airlines told people they’d separated with after PSP1 that they could not return if they had gotten a new job, even though the point of PSP2/3 was precisely to keep them attached to the airline.
Bad faith is pretty clear, but remember also the claim that without further subsidies (PSP2) they couldn’t fly vaccines? When most of the vaccines were being flown by Fedex/UPS, and where the US airlines got involved was largely exporting vaccines out of the country? (All good and important, but bad faith when the argument was that Americans wouldn’t get vaccines without subsidies)
It was nothing more than Trump transferring money to his CEO pals (which paid themselves $20m+ during 2020 and 2021). His administration could, and should, have put teeth on the bailouts (and even made money, like Germany did in boatloads); they did not because of their swampy corruption and corporate socialism ideology so it was a handout with no real strings attached.
Shameful; thankfully Trumpers got hammered in these elections (not that the others are saints, but bad is better than horrendous.)
As I recall, airline executives and politicians sold airline payroll bailouts to the public (which has the burden to pay for them) as a way to prevent massive employment losses that would damage local economies as well as the national one. Instead of using the money to maintain employment levels, airlines threatened their employees with layoffs (that would occur when each bailout expired) to persuade them to quit under the terms of various voluntary separation programs.
Airlines got rid of too many employees, especially pilots who are hard to replace, and couldn’t operate the schedules they instituted to meet public demand once travel resumed. These bailouts were bad faith with a capital BF.
@john
Congress in Section 4112 of the CARES bill ordered that “the Secretary [of the Treasury] shall provide financial assistance that shall exclusively be used for the continuation of payment of employee wages, salaries, and benefits” to airlines.
This was followed by a complete failure of the Trump administration, specifically the Treasury headed by Trumps’ hand-picked buddy Steven Mnuchin (whose corruption is well-documented) and his cronys for writing the appropriate regulations. Unsurprisingly the lack of regulations was used to steal money from the government.
Which is exactly why those people keep saying that ALL regulations are bad — it’s an argument so self-serving to the swamp.
Source: https://www.congress.gov/bill/116th-congress/house-bill/748/text
I hear ya. Good article. What are your thoughts on this statement:
The reason is because we’re a critical part of the infrastructure and they have to have us. They need us there on the other side.
I’m somewhat reluctantly agreeable on future bailouts in exchange for critical concessions from the airlines. These would have to include a stronger version of EC261 and acceptance of all landing slots being auctioned every 10 years on a rotating basis.
If you haven’t already noticed, airlines are basically a functioning amtrak at this point. Its only a few more years and another recession until the word functioning is removed and the basically just become amtrak – just with a lot more Karens working for them.
Like I’ve said before, the real customer of an airline is the government. The passengers are pretty much meaningless at this point.
I think bailouts should be contingent on limitations on seat pitch and max pax per sq meter in plane
The really sad thing is that the government didn’t need to give the airlines a nickel for Covid. All it needed to do was follow the science, tamp down the hysteria, and encourage everyone except the most vulnerable to behave normally. Nothing we actually did (except maybe some early monoclonals) helped anyone. Instead, we destroyed so much of society and spent trillions “to help.”
But that’s history for another decade. We still have too many people over-invested in all our failed interventions. The truth will take another generation to be accepted.