Sixteen Senate Republicans have signed onto a proposal for a second airline payroll bailout. The measure, which would give U.S. carriers a second $25 billion injection, likely has enough votes to pass – but that doesn’t mean it’ll be in the next coronavirus relief package.
Treasury Secretary Steve Mnuchin is negotiation with Democrats in the House and Senate over the contours of that package, with Senate Majority Leader Mitch McConnell saying the Senate will go along with whatever agreement they make. So it’s ultimately in Secretary Mnuchin’s (and the President’s) hands whether or not this happens.
Democrats want to pay to subsidize union jobs. Republicans don’t want to see major job losses effective one month before the election. But it’s more money than needed, comes too late to help, and actually delays economic recovery.
A Second Payroll Bailout Is A Scam
Airline unions began calling for a ‘clean extension’ of payroll support grants, and initially airline CEOs kept quiet. American’s Chairman Doug Parker told employees this was because his airline would survive without additional government support. However as lobbying efforts gained steam, airline executives took on a more public posture. Doug Parker went to Washington to press for it, while President Robert Isom manned the phones. Delta’s CEO publicly called for it this week as well and so as Southwest CEO Gary Kelly.
However it’s both not needed and too late and a huge boondoggle that puts money into the pockets of airline shareholders.
- 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.
Airline stocks were all up sharply on the news of Republican support for another government bailout, underscoring that this is money that benefits shareholders. You’ll see the sharp rise in airline stocks compared to the broader market:
Payroll Bailout Is Bad For The Economy
It seemed bizarre to cover the full salaries of $200,000 a year pilots and airline management when the first airline bailout was passed, at a time when so many businesses without the effective lobbyists airlines have were suffering. However there was at least the argument – no matter how implausible – that,
- Airlines are strategically important, and we needed to make sure they didn’t ‘go away’ (even though that isn’t what would have happened – United, American, and Delta all have experience flying through Chapter 11)
- The pandemic will pass quickly, and we’ll be back to normal in the fall. (We were still in the denial stage)
- So keeping everyone attached to their airlines and ready to go on stand by was an important bridge.
That no longer passes the straight face test. No matter what, in the best case scenario, airlines are going to be smaller in the future and need fewer employees.
On this week’s Airlines Confidential podcast former Spirit Airlines CEO Ben Baldanza makes the case that airlines are an engine for the economy, and need to ‘be there’ to support economic expansion. But there’s not a single major U.S. airline that may go out of business this year. (American Airlines is the most vulnerable in future years.) And even with this bailout airlines will not be flying as much as they were before the pandemic.
American Airlines CEO Doug Parker gave internal remarks offering,
“Assume a world where there’s a vaccine and everybody’s flying again and no one even remembers what coronavirus means next summer, we’re still gong to have something on the order of 10-20% less flying next summer.”
President Obama’s former Chief Economic Advisor explains why continuing to subsidize airline payrolls is bad for the economy. In addition to serving as Bill Clinton’s treasury secretary, Larry Summers led Barack Obama’s response to the Great Recession.
- Airlines are going to be smaller, it’s better for employees to move on to somewhere else sooner rather than later.
Some of the time it’s dumb to maintain employment… What conceivable logic is there in telling Delta Air Lines they have to retain every flight attendant until October 1st? Delta Air Lines is years away from needing the number of flight attendants it has now.
..[W]hat conceivable purpose is achieved by the government mandating that the illusion that those flight attendants have jobs to come back to is perpetuated as a condition for giving money? The right answer for those flight attendants is more generous unemployment insurance, and for them to get unemployment insurance and figure out what’s coming next.
- Delaying this transition, having employees sit idle and unproductive (“the failure to allow the appropriate economic adjustment is kind of the mistake that Japan made in the 1990s.”).
- 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. (“Ultimately for these industries to be viable they probably have to shrink.”) 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.
Summers concludes, “grants to the airline industry seem to be a classic example of something that won’t work.”
[…] in seeking bailouts during the pandemic, funding that ultimately totaled more than $79 billion. He camped out in DC to make a bailout his sole focus and it paid off handsomely, with around $10 billion in direct cash to American plus subsidized […]