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Tuesday, March 17, 2020
Trump Administration Readies Airline Bailout
The four largest US airlines collectively earned a net profit of more than $10 billion in 2018. Three months into 2020 and mere weeks after the onset of America’s Coronavirus scare they are looking for a bailout.
Airlines have been forced to cancel thousands of planned flights both as part of containment measures and because few people want to be in close proximity to travelers from who-knows-where as they pass through airport terminals and airline cabins. Revenue forecasts have not been updated but they must be plummeting. Delta alone has announced plans to cut flights by 40 percent and park 300 airplanes.
But airlines have high fixed costs. Even when passengers are not buying tickets, the companies still must make lease payments on airplanes that are not generating revenue. Employees must still be paid unless the crisis extends long enough to justify furloughs. Even furloughs entail costs for retraining crews. For the moment, Delta and its pilot union have agreed to a plan to allow some pilots to voluntarily take time off with partial pay as a stopgap measure.
Even with cost-cutting, the airlines will be burning through their cash reserves at an alarming rate. Industry groups say that most of the world’s airlines will be bankrupt by May.
The situation is similar to what occurred after the September 11 attacks when airlines were shut down for several days and then the public avoided flying. Despite a $15 billion federal bailout, a wave of airline bankruptcies occurred in the years following the terrorist attacks. This year, the leaner airlines will benefit from the reorganizations that resulted from those bankruptcies.
This year, the airlines are also asking for much more than the $15 billion they received 19 years ago. Airlines are currently seeking a $50 billion package that includes grant money, loan guarantees, and tax relief.
The Trump Administration appears ready to sign onto the plan.
“As far as the airlines are concerned, the airlines, we’re going to back the airlines 100 percent,” President Trump said yesterday. “It’s not their fault. We’ve told the airlines we’re going to help them. We’re going to be helping them very much. It’s very important.”
The question is how far the Administration is prepared to go. The effects of the Coronavirus downturn will extend far beyond the travel industry. Movie theaters are shut down, restaurants and bars are closed or are urged to provide carryout and delivery only, and untold numbers of other businesses are being affected as consumers take a wait-and-see attitude to spending on everything except food and toilet paper. Where should the line for federal aid be drawn?
It would be easy – and if we are honest likely – for Congress to choose political considerations over effectiveness in the virus relief bill. In the past, crony capitalism has often ruled the day and we should expect no different in a contentious election year.
In 1887, President Grover Cleveland issued a veto of a bill to provide federal funds for drought-stricken Texas farmers. In his veto message, Cleveland argued that charity for individuals was not the role of the federal government even though the cause was good.
“I can find no warrant for such an appropriation in the Constitution, and I do not believe that the power and duty of the General Government ought to be extended to the relief of individual suffering which is in no manner properly related to the public service or benefit,” Cleveland said, adding, “The friendliness and charity of our countrymen can always be relied upon to relieve their fellow-citizens in misfortune.”
For better or worse, both parties abandoned Cleveland’s conservatism and reliance on individual charity long ago. And possibly with good reason. A localized drought in Texas is one thing, but a nationwide pandemic is another. It’s impossible for individuals to bail out the airlines or help one another when they are confined to their homes and not earning a paycheck themselves.
“Unlike in 2008, unlike 2001 – there is not one or two particular industries we are talking about, and the economic pain that we as a society are going to face is widespread,” said Matt Dallek, a political history professor at George Washington University. “Because if you bail out the travel industries — well, what about the restaurants and bars that are going to go under? What about the taxi drivers and Uber and Lyft drivers? What about other people who are being laid off in other industries that are threatened.”
A much bigger question is how much a nation that is $23 trillion in debt and that was running a $1 trillion annual deficit before the current crisis can do to bail out its entire economy. Thanks to generations of profligate spending, we may find ourselves moving from a public health crisis to a debt crisis.