It’s Not Too Late To Say No To Bailing Out The Airlines

The U.S. Senate has agreed to a bailout package for large corporations, with a piece dedicated to commercial airlines. It still has to proceed through the House and be signed by the President.

The legislation lacks the environmental restrictions demanded by the House, and the $15 minimum wage Democratic leadership insisted on. It also only bans stock buybacks for firms receiving bailout funds for a year.

The U.S. government can issue over $50 billion in loans and grants (and take non-voting equity positions in airlines) under plans that have been sketched out so far. There’s also nearly $20 billion for airports and cargo airlines. It is not too late to stop this.

In a paper I co-wrote this week with Veronique de Rugy we make the case that a bailout is not the best way for the government to respond to the extreme challenges faced by the airline industry.

  • The airline industry isn’t unique in these troubling times. Airlines are facing a challenging time. Employees are likely to be laid off, just as they are across many industries. We aren’t going to be able to bail every company out, and at risk employees should be treated equally across industries. Spending $50 billion on airline relief is being taken from other workers and industries.

  • Shareholders and creditors should take a hit before taxpayers. The median individual income in the U.S. is approximately $33,000, but taxpayers are being asked to prop up share price and fund the salaries of airline management and senior pilots making in some cases ten times as much as they are. That’s highly inequitable.

  • Credit markets remain open to the airlines, and they haven’t come close to exhausting available options for funds. Delta raised $2.6 billion, United $2 billion, and American $1 billion over the past two weeks. They all have additional unencumbered assets. Not one of them has gone to their frequent flyer program (partial spinoff, presale of miles to co-brand bank partner) to raise cash.

  • Airline ‘failure’ doesn’t mean not having airlines. United, Delta, and American all have experience flying through bankruptcy successfully. United merged with Continental, which went through bankruptcy twice. American merged with US Airways which went through bankruptcy twice. Delta merged with Northwest which itself has bankruptcy experience.

  • No economic contagion to failure. When the US bailed out the banks, the argument was that a seizing up financial system would send shockwaves through the rest of the economy. A bailout doesn’t change the terrain for flying at this time. A slowing airline industry affects suppliers and employees, in much the same way as any other industry. There’s little strategic reason why a bailout is required – let alone at this time, before airlines exhaust their options to raise capital.

  • This isn’t a one-off event. This is an industry born into subsidy and corruption, initially earning its living off the U.S. Post Office and entering into corrupt deals (“Air Mail Scandal”). American’s first large aircraft order was funded by the Roosevelt administration (American’s CEO was best man in Roosevelt’s son’s wedding).

    Doug Parker was CEO of America West when it was bailed out by the government after 9/11. He merged it with US Airways which itself was bailed out after 9/11. America West executive-turned US Airways President Scott Kirby now leads United. Two bailed out executives return to the government for even more funding. When does it end?

Alan Joyce, CEO of Qantas which is a revenue-sharing joint venture partner of American Airlines, opposes airline bailouts,

[W]hen good companies have managed their position very well, the Government should let them manage their way through this, and not look after the badly managed companies, that have been badly managed for 10 years that have resulted in them being very weak.

In full disclosure I have a family member who has been furloughed by Qantas. And airlines are a huge part of my life. This blog is in many ways a travel business so self-interest should argue for a big bailout in travel.

I care deeply about the many employees I’ve met and befriended along the way. But this isn’t the last time we’ll be asked to throwing more money at the airline industry, and bail out the same executives. Taxpayers shouldn’t be the rope-a-dope of first resort, which is how we’re being positioned today.

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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  1. I agree and this is the case with so many beneficiaries in the coronabonus bill. NYC Museums and the Kennedy Center can’t raise money from their wealthy supporters? Government employees who still have jobs need a stimulus check? I’m sure once we get to read the 1,000+ pages it will only get worse.

  2. Among other issues, shareholders would rather the airlines lay off or furlough all but a fraction of their staff before taking that hit you talk about. Putting a hell of a lot of people work overnight for libertarian principles.

    The only money given permanently to the airlines in the bill will not stay with them, or with shareholders; it’s essentially welfare for employees, paying them through the airline.

    The rest of the bailout is a loan. Which must be paid back.

    If you’d rather 100,000 people be unemployed than have the government pay their paychecks for a little while (while essentially prohibiting their industry from functioning), I get it.

    But what’s this huge opposition to the loan? You think the loan should be given out by a bank instead of the taxpayers? Seems fairly irrelevant, what difference does it make to any of us, except for ideology?

  3. The request from airline CEOs over the weekend for payroll grants would cover full airline payroll through August – 100% of management, the most senior pilots – and in return they only promised no layoffs through August. Taking United’s public projections at face value on layoffs, it amounted to $13,000 *per month* per job. Appealing to jobs here, calling it “welfare,” is misleading in the extreme. And why on earth are $300,000 a year senior pilots higher priority than the people footing the bill, or laid off restaurant workers?

    It doesn’t matter in any case that shareholders would ‘prefer’ not to take the hit. They preferred not to take a hit when Delta, United, and American went into bankruptcy in the past. If they’re able to avoid bankruptcy that’s all the more proof that a bailout is unneeded. If they aren’t, they take their haircut and so do creditors and the median taxpayer is spared.

    $50 billion to airlines is $50 billion that doesn’t go somewhere else, either back in the pocket of citizens or somewhere more effective. But no way should airlines be at the front of the line when credit markets are still open to them. Indeed just today Alaska Airlines, much smaller than the others, closed on half a billion dollars in new funding.

  4. Airlines carrying around heavy debt loads for the foreseeable future will mean a much worse travel experience as fees rise and service is scaled back to pay off this debt, which they never will anyways. We need to kick this can straight into bankruptcy court.

  5. Airlines should offer early retirement to any airline worker above the age of 50. I do predict there will be a wave of retirements of pilots above the age of 60.

  6. @gleff

    Well… you may as well be against the stimulus package period, because no matter what, there will be “winners” and “losers” and someone will complain that some undeserving industry/person got a piece of the pie when they shouldn’t have, and some deserving industry/person didn’t get a piece of the pie when they “should” have.

    I skimmed your paper, and the reality is, your logic applies to numerous industries. There’s little airline-specific stuff in the paper that doesn’t generalize. If you were against the stimulus package on principle, I certainly get it. But singling out the airlines is a bit of a non-sequitor.

  7. Again with the politics. STFU Gary. Credit card pitching won’t go so well when the entire economy is in tatters and there’s no airline industry.

  8. @jedipenguin

    The irony with this whole seniority based pay system is that the the benefits to the stockholders are inversely correlated with the the overall economic health of the economy. When times are good, the airline is growing, adding staff at “bottom of the list” pay. This helps keeps wages/costs lower.

    But when times are bad and the airline stops growing, then costs shoot up because average seniority increases without any offsetting lower cost newhires.

    So yeah. They’re probably going to have to whack some of the cream off the top to get average labor costs down.

  9. The fact that your biggest problem with the bill is that it doesn’t contain $15 minimum wage or environmental controls makes it clear you’re just another leftist seeking to use the coronavirus as an excuse to implement your destructive socialist policies. Not a peep of protest about the house dems delaying things for days trying to load up the bill with every leftist pet project? You’ve lost all credibility on this subject.

    You complain about the airlines getting they payroll paid for, but that’s not an airline bailout, that’s an airline employee bailout. That’s your unions getting their piece of the pie. The employees are going to be paid to twiddle their thumbs, how does that help the airlines?

    This bill should have simply been about funding to fight the pandemic, a temporary pause in payroll taxes so that all employers could afford to keep on more employees, expansion of unemployment benefits, and perhaps access to government subsidized loans for certain industries (no Gary, credit markets are not open…for example, Delta just got downgraded to junk).

    This should be a $500B bill, not a $2T bill, and certainly not a $6T bill like the house dems wanted.

  10. Bailing out the US airline industry with so much money seems likely to be done in a way that is worse than using that same money to boost up unemployment benefits with that same money instead and to do so for people regardless of industry who have lost their jobs during this coronavirus situation.

  11. Some of your arguments are reasonable and some aren’t. First, it’s a bit difficult to know what’s actually in the bill because very few have been able to see it. I suspect that’s intentional, and not airline related, but I don’t know for sure.
    What does seem to be in the bill is a generous — indeed, over-generous — payout to airline employees. If the pilots of the major airlines who make more than $200,000/year are truly going to get their full salaries through the end of September courtesy of taxpayers, that seems very wrong to me. Just like the government is supposedly capping the (equally generous?) $1200 payout to every American to a certain income level, it seems like the compensation to airline employees should also be capped. And I question why, in this time of economic pain, any airline employee should be getting 100% of their salary when most of them won’t even be working. Employees in countless other hard-hit industries will get far, far less.
    As far as the corporate aid goes, I think your viewpoint is foolish. You rail against Doug Parker’s America West getting money after 9/11, but you fail to mention that — thanks to Parker’s business acumen — taxpayers made a $400 million PROFIT on that loan! Taxpayers should hope he wants another one. 🙂 Of course, Parker might not, for the reasons you state, but it certainly seems like a good idea to have those funds available for this important business just in case things go worse-than-expected with the virus.
    Second, the idea that the major USA airlines did anything wrong that put them in their current position is silly. No company with $50 billion in annual sales but also more than $45 billion in costs can easily manage an economic shock where revenues immediately drop to zero. As we saw after 9/11, private sector banking doesn’t always work during periods of crisis. And no publicly traded company could possibly stockpile enough cash to withstand such a remarkable “100 year” black swan event. Shareholders would rightfully demand this money back from the corporation, as we constantly see on Wall Street. All the major airlines have stockpiled cash since 9/11 — most have 5 to 10 times as much in cash on hand as they did then– in order to prepare for a 9/11-type disaster. Unfortunately, the current zero revenue situation is far, far worse.
    Given all this, it is terrible judgment to argue that the government shouldn’t make backstop loans to airlines, especially since it is extremely likely that any such loans will be paid back with interest. It almost feels like you have a personal vendetta against these companies, even though you, your readers, countless employees and the nation as a whole will greatly benefit when these companies start flying again.

  12. So the Senate Coronavirusbill gives the JFK center for the performance art $25M, at the same insistence of dems?!? I hope you libs are proud of yourselves. Pretty disgusting. If you wonder why taxes are too high, it’s because in each negotiation, Dems load a bunch of frivolous spending in each bill. Well, at least we didn’t get the $6T Pilosi house bill.

  13. I agree with Gary 100%
    And, knock me down with a feather, the usual suspects, ie swamp-dwelling snouts-at-the-trough Trumpsters have their panties in a twist over chicken feed Arts grants. What a sad state of affairs!

  14. @WR2 – you think that’s my biggest problem with the bill? I simply describe the bill we have. The environmental conditions that were going to be in the bill on the Dem side were mostly useless, mandating things the industry was doing anyway, although paying to retire 767s rather than making them available for amazon cargo seems like a bad idea…

  15. I totally agree with those that have concerns about the grant part. I fly AA and if it is true that DP is going to continue with the Oasis retrofits, then it is hard for me to believe that not a single penny of the grant is going to helping AA make customer experience even worse instead of truly saving the lower earning employees. In addition, airlines have already cut a majority of the flights, so do they need all those employees? I understand it’s not the employees fault but excuse my ignorance…to get paid for doing nothing is not fair to other employees not in the airline industry I would think. I’d rather see the airline bailout force big salary cuts at the senior level (some airlines have already announced voluntary cuts to senior levels…so big kudos to them), restrict them from any “enhancement” activities and focus solely on providing for their people and passengers. And potentially all airlines employee temporarily getting a percentage of salary cut (percentage changes inversely with their ranks in the ladder) which can then be supplemented partially by the grants.
    And for airlines like United trying to make it hard for customers to get refunds, they should be forced to stop that practice as they are getting grants that can help with issuing those refunds (again another stingy LUS leader)

  16. Last night, I was listening to Steven Mnuchin talk about the $2 Trillion fiscal stimulus program making its way through the Congress added along with another $4 Trillion of Federal Reserve liquidity, and it made me queasy. Believe it or not, the airline bailout is only minuscule part that the package.

    Direct style Government Spending stimuli supported by multiplier impacts, which my economy professors used to rave about, very seldom work as planned. It has been said that “Pride goeth before the fall”: It is has always been the ultimate conceit that Government can take over the large swaths economy, run them better, or even adequately. That is why Keynesian economics which I studied in college and graduate school has always been a disappointment. That is also why socialist countries where government takes over the means of production (not Sweden, Denmark, Finland, or Norway, which are capitalist countries) have trouble supplying bread, bandages, or toilet paper (hopefully there are leaves around). Finally, turning the country over to the bossy people who feel morally entitled to run everyone else’s lives will always lead to a massive decline in freedom.

    However, people that are blaming this on Trump are crazy. Had Hillary, Obama, Biden, Bush 2, Bill Clinton, or Bush 1 been in charge, they would have done the same thing but worse. In fact, had the latter group been in charge, there would have been little resistance to the Pelosi’s attempt to jam a federalization of elections in the bill (along with Democratic California style vote harvesting), a bailout of the Post Office, many economy hurting green initiatives, and so forth. Would have been Christmas time for the swamp.

    In any case the bailout ship has left already. And if you think this is just a USA thing, I have been reading about similar stimuli everywhere in the world.

    We all live in the economy; therefore, let’s hope it works, or at least does not do too much damage.

    On the airlines, if the Government is going to bail out everyone in the country (which I do not like) leaving out the airlines, because the CEOs are bad actors (which they are), just does not make any sense.

  17. This is not their fault and the recovery of the economy will need a healthy airline industry to get us back . However, some airlines have distruted operations plans (AA, DL ) and other do not (UA , B7) The airlines have been making amazing changes to policies, procedures and doing what they can to help their guest and stranded travelers.

    I applaud AA for being the first to run medical supplies and cargo while UA and DL where trying to safe pennies (DL has not started cargo runs too). AA also has run over 80 repatriation flights to South, Central America and the Caribbean.

    These business along with hotels and cruises lines employ millions worldwide. I don’t see other countries (which is usual) other than China jumping in to support the global economy like the USA. Except for the moran hoarding toilet paper and the 20 somethings still clubbing, we should be proud of how we are handling this crisis and know we will come out of this stronger at some point.

    Now shut the F@#$ up about the airlines and help a neighbor, volenteer at a food back, buy lunch for hospital worker, just get off your fat @#$es and make a different and help!

  18. Amazing that the usual actors still support Trump during all this, and say how much worse it would have been under past presidents. Funny that you have conveniently forgotten already that was just TWO WEEKS ago that this was still a Dem/Lib/MSM “Hoax”, it was totally under control, not a big deal, etc. And of course, I’m sure you won’t acknowledge the fact that there was LITERALLY a working group that dealt with pandemics disbanded by Trump in 2018.

    Enjoy your short term / 1-term president – he is truly a pathetic, lying & mis-informing, uninspiring, antagonistic leader in a time where we need the exact opposite.

    And OJS, nice try with “federalization of elections” – that is some serious Dark Web conspiracy trash. I guess you prefer the rampant voter suppression exhibited by many Republican-led states. I would have thought such a pure ‘Murican such as yourself might actually support making voting better available to all citizens. Clown.

  19. @sunviking82 Sorry I may have misunderstood your awful grammar, but DL has started doing cargo runs…

  20. @OJS – you are a troll. A serious, degenerate, troll. You continually implying I’m somehow rooting for the massive decline of America and the deaths of its civilians is disgusting and pathetic.

    Trump has done enough damage already, he will get himself kicked out of office based on a track record of lying, cheating, racism, playing favorites, insulting global allies…the list goes on and on. The country needs stability and a solid guiding hand at this point – clearly not him.

  21. @UA-NYC said: “You continually implying I’m somehow rooting for the massive decline of America and the deaths of its civilians”. You got that right, I believe you are, and it is downright sickening. I think you are stupid too, without ability to read critically, make a logical argument, or a basic understanding of elementary economics.

    Actually, I am getting bored with the waterbug analogy. After all, as I pointed out earlier, waterbugs are innocent bugs, part of nature. I am going to have to come up with another AKA that fully describes UA-NYC’s hatred for America.

  22. IF Accepting the bailout they should be forced to give people a REFUND not a CREDIT or in some cases nothing. What if there will not e a rescheduled trip. Not fair and double-dipping on their part

  23. America: Where if you’re a small business owner who saves cash for events like this and can survive it, you get offered nothing.

    If you’re a billionaire who’s spent all the money they should be saving on enriching themselves? “No, no! We can’t let you go through bankruptcy!! Lets just give you millions of dollars to make you whole.”

    This shit needs to end immediately.

  24. Watch the “Bailout Boys”, Bastian, Kirby and Parker will get theirs and then some. In order to repay their loans prices will go up. You can also be sure Chump’s contributors will get theirs.

  25. Yes it is too late to stop this. It was always too late. Congress works for the recipients of these handouts, not for small businesses or individuals. They will know which stocks to buy and sell before the ink is dry. Today new unemployment claims are over 3 million and the markets are up. Mission accomplished – that is what they expected to accomplish.

  26. There is still time to make changes in the House. Can you get this article in the hands of our representatives who will take it on?

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