Don’t Let American Airlines Rewrite History On Government Subsidies

American Airlines CEO Doug Parker did a live chat with the Washington Post on Tuesday and faced mostly softballs – but since it’s the DC local paper government policy is at the forefront.

So when they’re talking about operational problems customers face, what viewers want to know is whether Congress got its money/s worth for subsidies to airlines during the pandemic.

He was asked about $54 billion in cash payments to airlines (not counting $25 billion in loans, payments to airports, tax benefits, or payments to airline contractors) and wasn’t that an expensive way to save about 75,000 jobs at around $300,000 per job?

This was imprecise math, which let him offer that “I think that’s bad math.” Although Parker has used the same line before in response to impeccable math.

So let’s show our work, looking at the second and third round of payroll subsidies, because we know how many people airlines were going to furlough, because we know how many they did furlough at the end of the first round.

  • PSP2 and PSP3 totaled $29 billion and required airlines to pay workers retroactively from December 1, 2020 through September 30, 2021. That’s 10 months of employment.

  • We know the upper bound of how many people might have been furloughed during this period because when the first subsidy program ran out airlines did furlough workers. American Airlines and United furloughed about 35,000 total workers, while Southwest and Delta furloughed none.

  • In truth PSP 3 is the most egregious waste of taxpayer dollars because there were almost no workers who airlines wanted furloughed starting April 1. That was largely $14 billion for free, including to Delta and Southwest that never furloughed anyone.

  • However let’s give the airlines the most generous assumption possible, that 40,000 workers would have been furloughed through September 30, 2021 (rather than called back for the summer when airlines didn’t have enough employees to cover demand for flights even after recalling employees).

At $29 billion for the second and third payroll support programs, and 40,000 jobs saved for 10 months, that’s an annualized $870,000 per job. And that’s under the most generous assumptions possible for the airlines.

Meanwhile Parker disingenuously claims that nobody lost their jobs thanks to these programs. American proudly touts $500 million in payroll savings from shedding 30% of non-union employees. They used the September 30, 2020 end of the first payroll support program as leverage to get employees to leave early – effectively saying they could leave with more pay and travel benefits if they self-terminated.

And when payroll support was extended they even denied it to people they’d pushed out the door keeping more money of the money for themselves.

Ultimately at an airline like American about 15% of the money from the second and third payroll support programs went to keeping workers on board, with the rest going to shareholders and creditors. The ratio favored Southwest and Delta who didn’t furlough workers even more.

Union leaders went along with this ruse because it kept American Airlines (and possibly United) out of bankruptcy court, where their contracts might have gotten rewritten.

Parker is also disingenuous in saying subsidies ‘saved the industry.’ They saved American Airlines from bankruptcy. Most major U.S. airlines have flown through bankruptcy, and come out the other side with new owners. It’s how Parker picked up US Airways (on its second bankruptcy) and how he picked up American Airlines as well.

Now, without massive subsidies the airline might have just stopped flying in April and May 2020 – he’s being fair when he says that. And that might have been a good thing from a public health perspective. That’s debatable. But the planes and gates and skilled workers would have still been able to fly even if an airline’s equity had been wiped out at the courthouse.

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 »

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Comments

  1. If you’re getting pissed at the airlines for this, your anger is misplaced. What we need are people in Congress who will tell Parker, Kirby, and the others to go eff themselves, and who will put an end to the crony capitalism.

  2. No @David, we need people in Congress who are willing to let AA shareholders bear their own losses occasioned by the awful management they have permitted to stay at the airline, rather than place those costs upon taxpayers, and keep American and its management alive to offend again and again and again. Instead of keeping this Soviet style incompetent airline alive, let them go bankrupt, let the shareholders eat their own loss, and let the restructured assets be free to form into new units that better serve the public.

  3. It is also worth noting that neither US or Texas Democratic legislators or Republicans from Texas were willing to run the risk of tens of thousands of job losses in Texas in an election year. And union jobs could well have been eliminated (likely would have been) if AA had been forced into bankruptcy.

    The US needed to provide broad support across the economy in March of 2020; markets weren’t even functioning and airlines like Delta and Southwest could not even draw down lines of credit. After government action to open markets, DL and WN both drew down $10 billion in credit without government aid.

    Every other phase of airline aid was about politics, like so much of the covid era, and unnecessary for the health of the industry. Taxpayers got ripped off from all of the subsequent rounds of airline bailouts while at least much of the government aid ended up in the stock market which has improved alot of investment accounts.

  4. The subsidy was intended to replace lost revenue, not just replace crew salaries.

    AA alone would have lost close on $14 billion in revenue during the last subsidy period.

    The time will come, hopefully soon, when they’re expected to stand again on their own two feet.

    The article is just sour grapes.

    Author understandably has an axe to grind.

    Doug Parker actually spoke the truth for once when he mentioned poor math.

    Imagine that.

  5. See, you keep doing the math incorrectly. PSP funds covered all employees, but you keep disengeniously saying it only saved furloughed people’s jobs. If you’re going to write an article, at least make sure you’re telling the truth.

  6. @Doug, I mean Bob
    Even if the math was faulty, the issue is real. The airlines, all of them, need to succeed or fail without the government bailing them out. If shareholders and employees lose, then so be it.

  7. @Josh – the relevant question is how many people is kept airlines from furloughing, or how many got paid *who wouldn’t have been paid without it* and at what cost?

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