The Trump Administration is preparing to light $500 million on fire, handing taxpayer money to Spirit Airlines. You wouldn’t buy their tickets – but they’re going to make you give them your money anyway.
- This is a terrible precedent. Spirit is a bad investment, and government ownership (warrants in exchange for the loan) creates terrible incentives.
- It’s also blatantly illegal.
Secretary of Transportation Sean Duffy said this week that it’s a terrible idea. He’s called it ‘good money after bad.’ Once Trump has decided to do it, though, he’ll fall into line.
Spirit is a money-loser. They had no plausible business plan coming out of bankruptcy a year ago. And there’s no reason to believe that shrinking is going to make them perform better coming out of a second bankruptcy. They only need the money because private investors aren’t willing to fund their losses any longer.
I love that Spirit exists. They push down fares, although a much smaller Spirit will push down far fewer fares. It also makes things more difficult for ultra-low cost carrier Frontier, which is struggling. A more robust Frontier would be better for consumers nad low fares! With government ownership of a stake in the airline, though, that’s terrible for passengers.
- The Trump administration has a stake in the success of the airline
- When the Department of Transportation hands out slots at restricted airports, does this create an incentive for them to give slots to Spirit? The standard is public interest and the public benefits when the value in its stake goes up!
- Will the FAA have to check with the White House before imposing fines or restrictions on Spirit’s operation? Will they question whether they can act independently? Will this have a chilling effect on inspectors?
The Trump administration doesn’t want to see an airline go under on its watch, especially amidst high fuel costs, since its foreign policy (Iran) will be blamed – even though Spirit’s problems have little to do with and long predated high prices of jet fuel. As we approach the election, though, they’re looking to reach into your pockets.
Ironically enough, that makes Spirit Airlines no longer a low fare airline. You’re paying more for Spirit whether you fly them or not. That’s the ultimate ancillary revenue play!
But this is simply illegal. Without new legislation from Congress, there’s just no legal authority to extend loans to private businesses like this. Appropriations can only be used for things Congress made them for. The government can’t make obligations that they don’t have appropriations for. Under the Federal Credit Reform Act, loans and loan guarantees require budget authority.
I’ve written that my best guess is that the administraton claims authority from the Defense Production Act, which allows loans to private businesses to create, maintain, expand, protect, or restore capacity when needed for national defense. Spirit Airlines is not necessary for national defense. Come on. Nobody believes this. They’re less than 2% of domestic air travel capacity.
They’ll tell a story that Spirit is part of the national transportation system. Its failure would degrade low cost domestic air service, aviation labor capacity, emergency transportation resilience, and even emergency mobility in a defense emergency.
Again, nobody believes this. And no judge should buy it. But it will either (1) take too long to litigate to matter, or (2) a judge might simply give deference to the administration where national defense is invoked.
Using Treasury’s Exchange Stabilization Fund is even more legally problematic.
Stretching the law – violating all principles and norms of a rule of law – to get to whatever outcome is desired by the executive is in itself a bad result here.
Good coverage.
Additionally, a bailout would mean other airlines have to compete with a subsidized competitor, dragging the whole industry down.
One way to pay back the bailout is if all government officials flying would be forced to use Spirit. And until all of the bailout is paid back, tickets are free to government travelers.
First and foremost, can other airlines file suit to challenge this? Would it be considered providing an unfair advantage? Aside from Gary’s other applicable points.
Sure, it’s a horrible investment and simply supports a business that is not viable. However, you’d see the same response from a Democratic administration. No one wants to be seen as the bad guy that took out a “low fare airline.”
Finally, are we sure this just isn’t Trump babbling on without first consulting his staff. Duffy has already said he doesn’t think it’s a good idea. And could this simply be a guarantee and/or low cost financing for another airline to take Spirit on thereby averting at least for now thousands of jobs lost?
As Gary as also pointed out Spirit doesn’t have the luxury of time. If this can’t happen within the next few days creditors aren’t going to stand around waiting for a decision. They are going to move towards liquidation.
@Richard Rawlings – That’s actually an outstanding idea.
This is a terrible decision by the Trump administration.
Seems like a horrible idea to me and I disagree with it. You’ve mentioned most of the reasons of course, but this tripe about companies being “too big to die” is utter crap. Nor does it even apply here. Let Spirit run it’s course; it had iit’s chance and couldn’t adapt to the marketplace. Simple as that.
The Trump family and/or supporters likely will stand to gain from this but it will not be good for the industry, terrible precedent.
This is wrong and I have to pay for it. The stupid president is getting something from this and his corporate friends are going to take our money and run. We need to stand up and stop this crap.
For half a billion taxpayer dollars, just nationalize Spirit instead. I suspect the end goal is to use them as the carrier of choice for deportation flights.
Sure, it may blatantly violate the text of the law, but what about the Spirit of the law?
Blatantly illegal? Bah, Trump has those multiple times a day, and just try to stop him. He’s planning to bail out the United Arab Emerates, too. Constant corruption and cronyism. Bailing out his partners, companies or supporters with public money ensures loyalty and kickbacks.
Can the other airlines sue the courts for in a me too appeal?
I think the loan should only be approved if the Democrats quit preventing expedited repatriation of illegals to their native countries along with the foot dragging courts seem to be preventing ICE and DHS from doing their jobs.
Jobs for jet repatriation flights
Same people complaining about this are the same people who voted for him. No mercy. No quarter. You get what you deserve.
What’s $500 mil when you are blowing over $1.2 trillion a day on a war you decided to start?
the rule of law only applies to the orange man when someone is willing to stand up to him, and everyone picks their battles……
oh, re: illegal bailouts never paid back, the following numbers are all industries not just airlines who were the largest recipients……
september 2001: $15 billion
september 2008: $1.2 trillion
march 2020: $2.2 trillion
if the east wing fiesta is justified by NATIONAL SECURITY then anything is including a torture business on wings
Trump should make Spirit draw penis in sky.
Ray you do have a point, that is why I am thinking there may be more to the story coming out in a few days… President Trump does not throw good money after bad, after all he is a businessman unlike most politicians
Is the other part of the story maybe UA, WN, or AS. Bets are on.
Classic liberal hypocrisy on full display.These are the same people who have zero problem with the disastrous BEAD program — a bloated failure that spent billions of dollars and connected not a single home.Yet liberals cheer loudly as Democrats blow $180 billion taking care of illegal aliens.Taxpayer money only seems to matter when Republicans spend it. When Democrats waste it on useless boondoggles and actively support illegal activities, suddenly it’s “compassion” and no one bats an eye.
Pure, shameless double standard.
@BlackHill – So that somehow makes this complete abject waste of $500 million a good idea? Please explain. And know that I am asking this question as a conservative.
I see this 500M as fedgov signaling to the other airlines to work amongst themselves to subsume Spirit before they emerge from bankruptcy.
@klima nothing confirms “bot” better than touting orange man’s business acumen
I agree w/ Gary on the saneness of anyone investing in NK but let’s not pretend that only the red team does things that are not supported by law.
and the US government HAS made money on loans to the US airline industry which is probably why they are willing to do it again. Many US airlines still have covid loans which can’t be discharged in bankruptcy.
You will simply have a couple of airlines – likely led by WN and DL – which have good balance sheets and the rest of the airline industry that will be propped by government loans on top of massive previous debt which will only grow during the next year or so of high prices.
airlines and trucking companies are being disproportionately hurt by the war; these are loans and not direct subsidies.
The industry is cutting capacity but the US airline industry is already heavily concentrated; airlines that want to grow will either have to do it organically or buy assets which other airlines are ready to get rid of.
and the “loser” airlines (financially) will have to keep shrinking in order to push their margins up.
no one wants to make the tough call of lettting a high profile company die because of bad public policy – whether that was post 9/11, great depression, covid, or the Iran war
@mike blackhill is probably also a bot
$180 billion taking care of illegals?
comedy
@dunn “the US government HAS made money on loans to the US airline industry”
the absurdity of this statement is immeasurable with current technology
I don’t like the potential loss of competition, jobs, or options for passengers, if they fail. I also don’t like a bailout (loan or grant), if we, the taxpayers, get near nothing in return.
Sure, some of you will blame others (lame), but, fellas, let’s be honest… it’s the war; it’s oil; it may happen to others soon. So, maybe, prepare for that, and include stipulations, like new worker and consumer protections (I’d think low/no interest loans for airlines, an EU261 style law, prohibitions on stock buybacks and excessive executive bonuses are a good start.)
It sure is wild to see ye faux-conservatives (@Mike Hunt, included) have to become economic theory contortionists on here. “Let them fail!” But, also, “we still love you, Daddy!” and “hit me harder (with tariffs, and new wars)!”
Old-school and neo-fascistic Republicans alike each seem to wreck the economy, blowout the debt/deficit, happily do socialism for corporations and the super-rich, while forcing rugged individualism and austerity for the poors/out groups. Then, inevitably, the Dems will have to clean-up; but, you’ll use corrupted media to blame them anyway. Rinse and repeat. Prove me wrong.
Follow the money. Who will profit from this and how are they connected (or contributing) to members of Congress or the White House?
@Tim Dunn — Nice ‘but, but… the Democrats’ you got there. Weak. Then, the audacity of… “led by WN and DL”… Ok, pivot to how this is good for you and yours. Pathetic.