Republicans Are Signing Onto The Airline Payroll Bailout Scam

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.”

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Comments

  1. @ Gary — I am going to start splitting my ballot — Democrat except the House. A White House and Senate controlled by Democrats plus a House controlled by Republicans will hopefully keep the Supreme Court liberal and stop this bulls*** spending. The long-term damage from COVID will be the massive inflation and tax increases that are sure to come. IDIOTS.

  2. @Gene Government spending has been out of control since 9/11, but particularly after the last recession.. I don’t think either party is willing to take steps to cut the debt in any meaningful way.

  3. @ Brutus — Yes, but the Republicans are so slimy that they are more than happy to block “liberal” spending when the Democrats control the White House. The second they are in control, they run up debt at a a FAR greater rate than Democrats. That Democrats are somehow responsible for our massive debt was the biggest lie in American politics, then we got the biggest liar of all time — Trump.

  4. Well said. Moral hazard be damned. Airlines will continue to use all their profits for dividends and share buybacks because they know politicians will be there to bail them out with taxpayer money.

  5. Between both parties they are rushing headlong into driving this country bankrupt between the unions special interest lobbyist etc they are sucking the life out of this country. Look if anyone out there doesn’t think that there is at least a 10 to 15% across the board lost in jobs/positions they are smoking something.

    A for the airlines if they get relief then ALL retail etc must get the same treatment. As an older American I am sick to see what crap is going on in Congress. My grandchildren will be paying for this.

    As a business owner I can tell you first hand in California our operation is suffering because between state and fed funds workers are staying home, Socialism at its best

  6. perhaps it is time to shrink the headcount. Don’t see travel recover fully given the current situation in the US and airlines need to start downsizing.

    If we start subsidizing airlines then we also need to subsidize all the other industries affected and there will be never enough money to go around for everyone

  7. Gene,
    You are so right. The republicans are hypocrites, spend money like there is no tomorrow when they control the WH, and they become fiscal conservatives when the democrats control the WH. The last time we had a surplus rather than a huge deficit was in the late 90s with Clinton president and a republican house. Budget surplus, strong market, great economy and the dollar was worth more than the euro.

  8. I don’t like government spending but it is fair in this case. The government shutdown the country. That’s not a free market. 25 B in the grand scheme of things (Trillions of dollars of COVID government spending) doesn’t make a difference. One way or the other the government is going to wind up paying. Shutting down the country with no PPP, stimulus checks, expanded unemployment, and funding for industries like airlines would send the country into 3x worse than the depression. I rather the government pay to keep things afloat for the damage it caused than pay after the fact.

    Republicans generally push to lower spending but democrats consistently block it in the House or Senate. It’s disingenuous to say spending goes up with Republican administrations when a Democrat House forces the spending. The only area Republicans tend to be excessive on is funding the military when -200 billion a year still means the strongest military in the world. Democrats push for growing social programs by trillions and encouraging illegal immigration which costs 350 billion a year (it costs 10K a year for public school funding for each kid of an illegal. Plus Medical care, plus all the housing, food, and college tuition programs) not including social costs and crime. It’s been one thing after the other in the past 20 years. We hoped after the Cold War inflated spending would be over but 9/11 and the disastrous Middle East wars, 2008 collapse, and now COVID (the monster of all calamities)

  9. There is so much to debate in your post, Jackson, but I’ll simply point out the post is about bailing out the airlines for a second time. Not PPP, unemployment checks, etc.

    Disney is the perfect example of a company that’s figuring out a way to make money even when its cash cows are hurting (parks, ESPN, movies). Airlines could be raising cash by selling points, cheap tix in 2021, or even future status. Instead they’re getting special treatment.

  10. @Jackson Henderson – In fairness – the vast majority of those children of “illegals” are American Citizens and as such entitled to that education.

    It would be entertaining to see your “evidence” of increased crime by the American Children of “illegals”

    Also – Don’t like Middle East Wars and other “wars” stop voting for Republicans – they seem to start them – at least the ones that we are the aggressors in.

  11. Defund airlines – let the airlines bleed. There are too many of them these days and I’m sure the fares will still be reasonable with fewer competitors. Furlough those airline employees. It’s only a few thousand jobs. I’m sure there are other places they can go. Besides, there will be a vaccine soon and the economy will recovery quickly. Sure glad

  12. The words Republican and scam always go together, the scams always backed up by their reliable propaganda outlets in the media.

  13. I’m a Flight Attendant for a major airline and every article Mr. Leff writes is always completely off the mark. Unless your on the inside, you have no flipping idea how this industry works. He has free speech and I don’t have to read the articles but I feel better just saying he has no clue.

  14. We’d love to hear the other side @flygirl703. “Just trust me” doesn’t work on the internet.

  15. Gary you sound like a hater it’s not about just bailing out the airlines it’s about the employees they need they’re jobs I’m sorry you don’t think that the airlines don’t need another bailout and I understand that these companies are full of greed but do not take it out on the people that matter which is the employees that need to work

  16. The employees will be eligible for UI – what the airlines are doing is stealing money to the tune of 333,000 per employee. FA’s make 35-60k I’m married to one – we don’t need the $ and well we won’t see the 333k – if we were going to – I would be open to a new round – but we will see leas than UI – the rest will go to management

Leave a Reply

Your email address will not be published. Required fields are marked *