The federal government committed $65 billion in grants and subsidized loans to airlines in 2020, and is now considering a third bailout. While the funds were marketed as protecting jobs, only about one eighth of the second bailout actually went to pay workers who had been furloughed (and airlines that never furloughed anyone received billions).
After bailouts during the Great Recession there was a national conversation recognizing that bailed out companies weren’t really private enterprises and the need to make sure bailouts never had to happen again.
Airlines have already been partly nationalized. The federal government took warrants in each of the large airlines receiving bailouts, in exchange for the first round of payroll support, for subsidized loans, and for the second payroll support grants. American Airlines even pledged the AAdvantage frequent flyer program as collateral to the government for its loans.
It can’t be said that the bailouts are somehow unique to the unprecedented times. This isn’t the first pandemic, and this isn’t the first bailout. Twenty years earlier the Air Transportation Stabilization Board was set up, and airlines like America West and US Airways were rescued by the state.
How do we make sure this travesty never happens again? Raising minimum capital requirements wouldn’t do it, because airlines have just placed guns to the heads of legislators,
- They threaten to let go of workers, and Democrats want to protect union jobs (while President Trump didn’t want to see high profile job losses right before the election)
- They told the whopper that without subsidies vaccines wouldn’t be transported
- Airlines are carrying unprecedented levels of cash now and another bailout is under consideration.
Banning stock buybacks and dividends doesn’t do it either, those have been suspended as a requirement of the first (and second) bailout and another is on the table. Besides this just pushes airlines to build cash, which they then look to deploy in other manners such as mergers, acquisitions, or aircraft orders. (United Airlines committed a billion dollars to urban mobility company Archer.)
“Re-regulation” or a return to pre-1978 would just mean the government telling airlines where they can fly and what prices to charge. But did you know the Department of Transportation basically got the authority to direct airline routes of carriers taking subsidized loans, and declined to exercise it? Furthermore this does nothing to prevent future bailouts.
Dodd Frank financial reform came about in part as a way to prevent future bank bailouts, but it just made private equity more profitable by keeping the best startups private for longer (since it raised the cost of going public). And pieces of it, like the Durbin Amendment, put banking out of reach for the poor by eliminating the ways that banks covered the cost of checking accounts (debit card interchange), leading to the imposition of fees in the absence of minimum balances and payroll direct deposit.
Ultimately the only way to prevent future airline bailouts is not to do them, but the political impetus is always to spend money to satisfy narrow constituencies at the expense of the public which has little individual incentive to pay attention to how they’re getting fleeced. In other words, this isn’t the first time and it won’t be the last. Airlines in the U.S. will always be vassals of the state masquerading as private enterprise.
It was never clear how much financial exposure United has to Archer, as opposed to Mesa, and how much is unrestricted vs Archer having to meet certain criteria. Capital requirements won’t work as long as private equity companies can take over an airline and extract all that capital while under the guise of being private.
As long as the American economy is dependent on having a future competitive airline industry, there will be bailouts when circumstances demands it. Would you rather see bankruptcies, frequent flier program obligations discharged and industry consolidation? Because that’s what you would get without bailouts. Would the United States be better off with a single flag carrier? Even those were bailed out abroad. The United States has a vested interest in having a competitive airline industry, and sometimes that means they need to bail them out. All that extra cash won’t mean anything if demand doesn’t return.
Say it with me America: Government intervention (subsidies, bailouts, regulations, etc) almost ALWAYS makes things worse. Say it over and over and when you are tempted to support government intervention, say it 1,000 more times.
“How Can We Prevent Future Government Bailouts Of The Airline Industry?”
Um, have no more pandemics, especially those where the government shuts down the economy for and scares the bejesus out of everyone for little reason?
What a dumb question, of course we can prevent future bailouts for the airlines, banks, and everyone else. It’s called saying “NO!”. Let them fail….the next guys that take their place should be smart enough to put some money in the bank to carry the business through tough times instead of paying their executives massive compensation and bonuses while borrowing more. If they don’t, then they can go under too, that is how capitalism works!
I so don’t understand why this is not just that simple. Continuing to discuss/entertain the idea of bailouts in any forum just serves to make the problem worse.
Seems like it is similar to the support given directly or indirectly to the oil companies, big Pharma, health insurance interests and half a hundred other industries that get federal monies in various fashions. The system works both ways as they give some of it back in “campaign contributions” thanks to Citizens United and insure that they hire people in strategic Congressional states and districts. The system needs cleaning from top to bottom starting with substantial taxes on the super rich and their companies, plus an amendment taking away “free speech” (bribe money) from corporations. Without that the rest is just window dressing. The those in the middle, let alone the poorest, get screwed.
With so many Americans being customers of the big airline frequent flyer programs, there’s a built-in base of people who don’t want to see their accumulated miles get wiped out with the airline.
If the big US airline loyalty programs were somehow banned in the US, perhaps the proportion of the American public supporting airline bailout policies would be somewhat reduced too?
Obviously Gary, without government intervention, you wouldn’t have an industry to write your shitty articles about.
How about take a step back and re think your position. This pandemic was no fault of the airlines. Yet boosting up the broader economy was the goal….. what would have happened if everything was just left to fail? THINK before you write.
I have read in this site and other travel sites praising Scott Kirby, CEO of United as an “accountant”, “do the numbers himself”, “very smart”… If Kirby is truly that type of person, he did not have to ask for more money. It turned out that he was just a regular greedy guy, not “bean counter” as praised. If all you do is think of way to betray and screw customers up, anybody could do for 1/4 the salary and benefits he got.
@JT – You think that without government intervention there wouldn’t be an airline industry? That’s crazy. UA/AA/DL/WN could all declare bankruptcy tomorrow and there would still be an airline industry. The aircraft wouldn’t suddenly disappear, the airports wouldn’t suddenly disappear, and the qualified pilots, mechanics and FAs wouldn’t suddenly die. The industry would adapt, business models would shift, and the newly restructured companies would find ways to meet the demand for air travel in a way that is generally profitable. That’s how markets work (when they aren’t being distorted by government intervention).
Gary: Really, airlines are nothing special. The government supports every industry, none more so than farmers, which is good as we need food. I think you are off the mark on the poor and banking, plenty of banks offer completely free checking accounts, but where the poor get killed is with the insufficient fees and other charges that get imposed (not low balance fees). This is why poor people quickly abandon a traditional bank account, which thanks to technology is unnecessary anyway. The Cash App is probably the best so far (Square), but Venmo (Paypal) isn’t far behind with adding features. Traditional banking is going to really change over the next 10 years, with the young and poor being the early adopters. Any CVS handles more “banking” transactions than a typical bank on any given day.
Doug,
I’m sure you’d be the first to complain when ticket prices soar, because in your world, the government didn’t help out and some airlines had to shut down.
Really think about the broader reach of the Airline industry as a whole…..when we’re employed and not furloughed, we contribute a tremendous amount to the rest of the economy. Without said jobs, we won’t be hiring a painter, plumber, going out to eat, etc. So yes, whether you think airlines deserve government help or not, think about it in broader terms.
JT: You need to take your own advice about thinking before you open your mouth. Take that a step further and try actually knowing what the hell you are talking about as well. Bailing out these businesses just rips off the tax payers and ensures that the businesses never learn to keep assets in reserve for emergencies, their fault or not. This is a plague affecting businesses and private citizens alike. They are too selfish to put back a savings and when an emergency comes it is all of a sudden the responsibility of those who work the hardest for what they earn and pay all the taxes to prop up the selfish ignorant masses to the tune of trillions of dollars. Businesses and individuals need to stop holding their hands out and support themselves, if not let them fail and a stronger society will emerge who can. If you don’t like that, tough….that is how a free market economy works.
We could start by not falling for fallacies and hoaxes, such as the Covid scam.
Require that airlines have sufficient cash on hand for a down turn before they buy back stock.
Ryan:
I’ve been in this industry for 27 years, so I’m way more qualified to discuss this topic than you are. You’re just a pissed off tax payer. You were probably incensed after 9/11 as well…in both cases bailouts were needed, not because of poorly run businesses, but rather circumstances beyond their control.
I suppose you feel the same way about restaurants as well.
@JT – you believe any business harmed by ‘circumstances beyond their control’ should be bailed out? You mention restaurants as deserving a bailout, should airlines be in line for bailout #3 before most other businesses harmed by ‘circumstances beyond their control’?
And remember airlines have plenty of cash and several have more wood left to burn to raise cash on the private market. With the first two bailouts the major carriers aren’t at risk of ‘going under’ (though American might benefit from a restructuring after taking on so much debt and failing to shed costs the way Delta and Southwest have).
Gary:
This is also about the human element here which I think everyone is forgetting. Not bailing out some of the largest industries out has an enormous trickle down effect.
Also, whether it’s airlines, energy companies, etc., the government is not going to let their “investment” go to waste, so they will continue to add bailouts until they are no longer necessary.
Yes, most airlines were better positioned to weather a downturn, but not an absolute decimation of demand. Think about what six airlines in bankruptcy would look like.
It would make these bailouts look like chump change.
@JT you’re really arguing that the justification for a third bailout is that there have already been two? (Cf. ‘sunk costs’)
Certainly you’d agree that there is no systemic risk at this point of ‘six airlines in bankrupty’ but I’d point out to you that most of the major airlines – Delta (and Northwest), American (and US Airways twice), United (and Continental twice) – all flew through bankruptcy quite well.
Who is forgetting the human element? My point is why prioritize airlines for ANOTHER bailout at the expense of other humans actually suffering? And why give airlines 10x the amount required to fully pay furloughed workers, allowing them to keep the rest of themselves? Why give funds to airlines not furloughing anyone at all?
Gary:
Was there a risk of bankruptcy for at least one Airline? Yes. When one goes most will follow to also ratchet down their costs. Look at airline history, it’s been done before.
My beef is that certain commenters here ONLY look at the tax payer hit and not caring about people losing their jobs.
If they are so outraged at “the cost to taxpayers” are they looking at the latest government waste on a second impeachment trial that went nowhere?
To put it in perspective, at most major Airlines, the cost to furlough pilots in severance alone is anywhere between $50K-$90K. Not to mention the cost to retrain them. Other employee groups have furlough separation agreements that are expensive.
Aside from that, the main cost is the day to day operation. Aircraft payments (even on ones that aren’t flying), insurance, etc don’t go away.
Like I said earlier, the airlines were in much better position this time as well, but there’s also NEVER been such a SEVERE dropoff in flying – not even after 9/11.
So the daily cash burns were not sustainable without government intervention.
@JT – if you want to worry about people losing their jobs the cost of bailout #2 would have been 10% of what passed. This is not primarly about jobs. At least be honest about that, even though the airlines aren’t.
JT: I’m glad that you seem to know my life’s experience and what motivates my comments so well, are you psychic as well as selfish? These bailouts have repercussions far beyond those to the tax payers who you so think should pay you out of their own pockets. As for people loosing their jobs, that is temporary and as I have stated before….if they are responsible people they will weather it in stride. In the end they will end up working for a much stronger and less greed driven company that will better provide for their families in the end. As to your 27 years in the field, your point of view just proves you to be exactly what we don’t need in this country….so selfish that you would rather let the rest of us pay your salary instead of bettering your industry and society as a whole. Otherwise known as a typical self centered ignorant American that wouldn’t be willing to make any level of sacrafice no matter the benefit to yourself and society as a whole in the end. Me me me me…..gimme gimme gimme! It’s people like you that are the biggest part of the problem, thanks for proving my point so well.
Gary,
Airline bailouts, please. All big American companies receive ungodly amounts of government assistance. Last year 40+ companies paid no taxes. In 2019, there were 91 companies that paid no tax. Guess how many were airlines? I’ll answer, almost all the US airlines paid no taxes in 2019. Probably the same for 2020. Whereas individuals and small businesses in this pandemic received nominal amounts of assistance. Then the wonderful members of Congress stated that assistance was too much. But big companies received all kinds assistance, whether they needed it or not. Many received forgivable loans, and so on! Where is my forgivable mortgage? For the other pompous people here, I not saying gimme! It is just an example of the whole absurdity of the situation in America.
Big companies in America, get whatever they need. Pandemic or in a normal economy!
Ryan:
Hardly selfish. Never once throughout any furloughs have I once expected a handout or fellow employees to subsidize my furlough….
Since you’re not as smart as you think, and can’t seem to grasp the subject, this was worse than 9/11, SARS, and the 08′ financial crisis combined. Yet, who’s selfish here? You don’t want to help anyone out especially if it affects your wallet.
I can tell you’re the type that will be the first to complain that your $89 fare doesn’t include a meal and a checked bag. Yep, know your type well. I and my fellow employees have been subsidizing your coveted low airfares for YEARS. Yet, the price goes up $5 and we hear nothing but complaining.
When you buy a ticket for a pro sporting event, do you expect a free hot dog, french fries and a Coke too? Yeah, I’m selfish.
JT: You should really should stop listening to the voices in your head and the lies for profit on TV. For your information, as it seems you need all you can get, I typically fly business or occasionally premium eco with real airlines like Cathay, Virgin, Ethiad, etc. Not the complete trash that passes for airlines here in the US. So….once again I suggest to you, stop running your mouth about things that you know absolutely nothing about. It only serves to expose you as the selfish little moron that you are, typical american through and through.
I am a high level network engineer, I help run the infrastructure that keeps most other businesses alive and running day to day. I am damn good at what I do because I work hard, learn constantly, and take much pride in doing my job to the best of my ability and expect the same from those I work with. The few times in my career when some cooperate jerk off decides to make selfish decisions that negatively affect my job (That is what is going on here….not a virus or terror attack as you seem hell bent on using to justify your handouts), I have no problem ceasing to support them and finding another position with a better company. In the mean time I live off of my investments and savings that I have been responsible enough to put away. I don’t sit around ranting like some petulent child making baseless accusations to strangers on the internet and crying for a tax payer funded bailouts.
I don’t dodge taxes or try to justify not paying them with blind donations to supposed charities. I pay my fair share and then some. I work hard and gladly pay to invest in my community to improve it and leave it a better place than what I found when I arrived. I do meaningful things like helipng abused and neglected kids and volunteer work with the social organisations that I carefully choose to belong to. I have absolutely no problem giving to those less fortunate who are not the creation of their own problems. I have every right to expect others to stand up and support themselves….and say no to them expecting me and other responsible individuals to pay for their mistakes. Stop your whining, take some responsibility for your choice to work for who you work for and stop expecting others to pay your way while you whine about it.
Any further asinine assumptions that you would like to make about me because I don’t want you and the masses like you sticking your hands in my pocket every time something doesn’t go your way?
Ryan:
Nice tie.