Spirit Airlines, on the verge of halting operations in its second bankruptcy in a year, has asked the Trump Administration for a taxpayer-funded bailout.
According to The Air Current, Spirit has asked for “hundreds of millions of dollars in emergency funding” as it works to forestall liquidation. The ultra-low cost carrier segment has especially struggled, and The Air Current further reports that Secretary of Transportation Sean Duffy will meet “executives from several low-cost carriers…early next week” at DOT’s request.
There is no plausible actual legal path for the Department of Transportation or Treasury to offer a bailout, but in this administration there have been a lot of changes about what it means for something to be provided for in law.
- The government has bailed out airlines before. After 9/11, the Air Transportation Safety and System Stabilization Act paid out $4.6 billion to more than 400 air carriers.
Then the Air Transportation Stabilization Board mostly provided loan guarantees to recipients including America West, US Airways, American Trans Air, Aloha Airlines, and Frontier.
At the outset of Covid, the CARES Act (and then two subsequent rounds of additional payroll support) provided $54 billion in direct grants and $25 billion in subsidized loans to U.S. airlines, plus tax relief and funding for contractors.
Spirit received $754 million in direct payments from taxpayers during Covid.
- But no legislation allows this now – and none is likely forthcoming. These programs, though, were specifically created by Congress. There is no legislation in place that would allow for a Spirit bailout at this time.
Any commitment to Spirit would need to come quickly. And Congress is unlikely to act quickly, if it were to act at all. The House of Representatives is virtually evenly split between parties. Spirit isn’t considered too big to fail. There’s going to be little urgency in Congress, unless the President were to make it urgent, and then it would have oppositon from Democrats.
While an airline failing during the Trump administration, which some observers would blame on fuel prices (unfairly – they haven’t had a viable business plan in either of their bankruptcies), would reflect badly on the President, the economy and foreign policy, it would also be laid at the feet of the Biden Department of Justice which blocked JetBlue from acquiring the troubled carrier.
- DOT doesn’t have the tools to hand out large subsidies to a single airline. DOT can offer War Risk insurance when private coverage is unavailable on reasonable terms. The Essential Air Service program subsidizes flights to eligible communities. The Small Community Air Service Development Program can fund revenue guarantees, marketing, startup costs, and studies. And the Air Carrier Incentive Program lets airpors offer promotional incentives to attract service. Available authorized, uncommitted funds are too small and restricted to be of assistance.
- If they really wanted to shoehorn this, what would they do? The Exchange Stabilization Fund allows the Treasury to deal in “gold, foreign exchange, and other instruments of credit and securities,” but only consistent with U.S. obligations in the IMF on orderly exchange arrangements and a stable system of exchange rates. This is largely foreign country bridge loans, the 2008 money market guarantee early in the financial crisis, and support in 2020 for Federal Reserve emergency lending facilities.
Then Treasury Secretary Tim Geitner was explicit that this authority does not permit investing in a failing private company.
The Trump administration has taken stakes in other companies – but those have used specific authorized programs, like the Commerce Department’s semiconductor incentives program. The Treasury’s Exchange Stablization Fund has never been used for anything like this, and there’s really not a good argument that it legally could be.
But that doesn’t mean the administration wouldn’t do it, claim the legality was just murky enough, and ask who’s going to stop me? With some hand waving the administration might send out money and then just say “sue us.” Spirit will have continued operating (and perhaps lost the money) by the time courts intervened.
At some level the entire point of an ultra-low cost carrier is low costs to consumers, and so taxpayer subsidies wipe out the very argument for Spirit’s existence.
Selective aid distorts competition. The major problem airlines are facing is fuel, having chosen not to hedge risk. Chapter 11 is already a mechanism for dealing with this. The planes, pilots and gates do not disappear and consumer demand has remained robust. And bailouts are of creditors and stockholders, not mostly passengers.
As The Air Current notes, J.P. Morgan’s Jamie Baker told investors on Thursday that if the administration gave a bailout to Spirit, that Frontier and JetBlue would immediately line up for handouts as well. JetBlue’s CEO has been arguing that government should tilt things in her airline’s favor already.
And Baker notes that if the government gave handouts to JetBlue and Frontier, “would American be far behind?” American’s last CEO made a carrier off of government bailouts – from securing one at America West, taking over US Airways which had just received one, and acting as the primary industry lobbyist for the $54 billion achieved during the pandemic. Of course American’s issue is not solvency, it’s financial underperformance.
Spirit’s story though has little to do with fuel. They haven’t had a viable business, and their business has a terrible reputation. If this were a viable business there would be investors for it.
@ Gary — Nothing a donation to the T-Epstein Foundation can’t resolve.
Hear me out – A bailout should only be approved if Spirit is willing to rename to Trump Shuttle.
It’s serve ’em right for even asking…
No. No. No.
What’s another 40 trillion in extra debt between friends?
I do have some empathy with the cost of inflation ravaging fuel costs
This is going to be a rough environment in this era
No matter want happens I hope United and Delta don’t get their gates or pLANES
As they are crooks and thieves
My second hope is that the Jerry Springer show doesn’t come to the remaining carriers
Why not just be like Allbirds shoe company and declare that you’re an AI company now? Just chop off the “rlines” from the name. Spirit AI stock should go up 600% in one day.
Let them fail. Airlines need to make a profit and fares need to reflect that.
Your political commentary here is kind of odd it was Elizabeth Warren that pushed the DOJ to block the merger something about poor people need to fly too or something to that affect, and no doubt Florida which is Trumps major base would support keeping them styling afloat since that is where Spirits HQ is. They have major operations out of both Boston and NY. I think actually he has some political capital here to pull it off.
Also the whole “Congress” approves funding is only an argument they use when its convenient when their was no funding for SNAP the Court ordered the administration to “find” money to fund it lol.
@Denver Refugee — I’ll allow it… if… we get US261. In fact, he can nationalize all airlines and call them all after himself… so long as we get meaningful worker and consumer protections. So, basically, poison pill. Not happening.
@L3 — Yaaasss queen.
It pains me to no end to admit that’s an entirely plausible scenario.
As bitter and hateful and opposed the AFA has been to President Trump over the years … I really do not see AFA membership at Sprit deserving of his support in terms of a bailout? Does anyone else not see this too.
If Spirit disappears, will the passenger brawls in the terminal adopt another airline?
@Mark – They’ll move to the nearest Greyhound terminal.
I’m not particularly in favor of bailing out failing companies. However, I am in favor of protecting good paying jobs for working people.
If there were a plan on the table that would encourage more employee ownership it would go down easier in my book.
David P does have a point as it is not just the small political minded AFA who makes Spirit Airlines up. Maybe this will be a wake up call for this association to be a little more objective. Then again so many of the Spirit positions are outsourced, i think the AFA is the largest and predominant work group.
Trump is not going to bail out Spirit. Remember, he’s a businessman who’s even run an airline. This is not an America West situation where you had a viable business with talented leadership that had the super bad luck of needing some financing immediately after 9/11. The Feds made hundreds of millions of dollars helping America West, but loaning money to Spirit is a much worse bet. What Trump MIGHT try to do is jawbone Spirit’s creditors and Frontier to work out a merger. That said, I’m not sure Trump CARES about Spirit, or that a merger is even possible at this point.
@Denver Refugee — So, you did like my Allbirds idea after all! Only thing, their stock did crash today, so… pump n’ dump is basically how that’d turn out. I am hearing great things about this pets.com website though… time to party like it’s 1999!
@Mark — Ehen, Frontier and Allegiant are offended that you forgot them…
Corporate bailouts are not the answer; bankruptcy or liquidation is. A bailout is a failed strategy because of the “moral hazard” issue. When the government steps in to save management and stockholders from the consequences of their bad decisions, it encourages similar behavior by other companies. If companies can shift the cost to taxpayers without adverse consequences, we shouldn’t be surprised when they do it.
President Stable Genius could easily save Spirit if he wanted. All he’d have to do would be to dial up a few fellow billionaires who got enormous tax cuts last year (adding to the deficit that is now over $2 trillion a year) and ask then to pony up 10% of what he saved them this year. That would have Spirit swimming in cash, which would buy time to make the changes needed to survive.
@Mike P — So, you thinkin’ more Lehman or Bear Stearns here?
“…(adding to the deficit that is now over $2 trillion a year)…”
Tax cuts don’t create deficits. You can’t increase debt on the revenue side. All debt is created by spending.
All Spirit CEO has to do is sing a few lines is sing a few lines really praising Trump and how he won us this incredible war and immediately the bailout money will come
@Mike P — Oof. You’re being disingenuous again. It’s not just a spending problem. Tax cuts often increase federal deficits, when not offset by spending cuts or economic growth, as they directly reduce government revenue (the thing we’d need to pay down the debt). Even though there’s a lot of propaganda trying to convince us otherwise, historically and in-practice, tax cuts have not produced enough economic growth to offset. Meaning, tax cuts alone are not effective for solving the deficit or debt problem; they often make it worse. We would likely need to both increase taxes (say, by ending loopholes for the wealthy, who mostly live tax-free by using loans with their stocks as collateral; see, buy-borrow-die), and also cut spending (I’d start with actually forcing the Pentagon to pass an audit, and actually living up to your guy’s promise of ‘no new wars.’) We could also stop subsidizing already extremely profitable industries like oil and gas, big Pharma, etc. (And yet…I’m sure you’re about to say it’s all single moms on food stamps to blame, right? Yeah, yeah… they eat sooo much…)
If a business can’t generate enough revenue to cover the cost of delivering it’s product or service that business doesn’t belong in business. Why should I pay taxes to allow lower income people the chance to fly? I lived through the CAB days. Middle income Americans rarely if ever flew. No one screamed racism or social inequity. They instead just got in their car and drove to their destination.
I will miss the airline and airport meltdown videos. Hopefully Frontier will pick up the slack before they go belly up.
Spirit Airlines is like Lazarus… resurrecting from the dead. Quit trying to use financial “electro shock” and let them die in peace! Other airlines are hiring BUT…the employees are going to have to forget their old “Spirit ways” and provide polite and good customer service. Or they can try to get a job with Frontier, Marriott or Hyatt where “customer service” is basically the same as they are used to at Spirit.
I would drive across the Country before I would set foot on Spirit Airlines. It was painful enough to fly on Frontier last year, and never again.
“Tax cuts often increase federal deficits, when not offset by spending cuts…”
Thanks for proving my point. All debt is created by spending. You can’t create debt on the revenue side. This is basic accounting.
What’s a few hundred million dollars among friends?
@Mike P — “…or economic growth” which is often the pitch when those pushing tax cuts suggest (lie) that they pay for themselves.
So, what would you like to cut, sir? I’m assuming it’s any and all social programs, but not corporate subsidies or military spending, eh?
*incoming* Magic words… “but, but… the economy” (aka rich peoples’ money) and “national security” (aka ironically also rich peoples’ money)
No, no… it’s single moms on food stamps that suck up all the munmuns… /s
@David P – This might surprise you and others who think like you do to learn, but the jobs and airplanes do not (entirely) disappear into thin air when an airline goes out of business. Long-term capital assets (aka airplanes) are sold off to profitable airlines and consumer demand is then met more efficiently, creating new jobs in the process. Government bailouts do not really “save jobs,” they merely distort markets at the cost of taxpayers.