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.