Coronavirus

Airlines Are Asking for a Second Bailout. Congress Should Say No.

The federal government has already made $32 billion available to distressed airlines. The industry wants another $25 billion.

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As the saying goes, "When you find yourself in a hole, stop digging." This advice applies to the hole Congress leapt into by bailing out the airline industry back in March through the Coronavirus Aid, Relief and Economic Security (CARES) Act. Now, these companies want even more taxpayer money. The federal government should refuse another bailout.

Like many industries affected by the COVID-19 pandemic, airlines have lost a lot of revenue. But unlike other industries, the coronavirus relief bill authorized up to $32 billion for payroll support for airlines through Sept. 30, for roughly six months. Basically, the way it worked is that every airline that got a loan could furlough its employees, but those that took both a grant and a loan couldn't. Of course, it's difficult to tell if the U.S. Treasury Department was ever serious about enforcing these requirements.

Traditional objections to the first bailout were ignored in the name of saving airline workers' jobs. Unfortunately, that reasoning was mistaken. Many airline employees still lost their jobs, while others suffered severe reductions in employment. For instance, part-time workers only had to be paid for minimum hours. As a result, many airline employees still had to apply for unemployment insurance to cover their lost hours.

Unless the worries around the COVID-19 virus quickly disappear and consumers are willing to soar in droves through the friendly skies once again, that bailout would have merely postponed layoffs through September. Sure enough, here comes the airline industry again, with its captain's hat in hand, asking for another $25 billion bailout.

Several members of Congress have already signed a letter urging their colleagues to extend the bailout, and President Donald Trump is even considering an executive order to accomplish that goal, echoing the airline unions' claim that 75,000 employees would be furloughed without it. If you do the math, that's $333,333 per job "saved" until the money runs out.

Let's remind everyone why we shouldn't bail out airlines. Yes, the coronavirus crisis is both a public health and an economic tragedy. But this doesn't justify the government granting special privileges to private firms, at least not without those firms first taking other available steps to potentially avoid the need for a bailout.

There are other options they could pursue.

First, the airlines still have plenty of access to private capital markets. They own significant amounts of durable assets that they can sell or use as collateral to get additional financing. Indeed, they've been able to secure substantial private capital since the beginning of the pandemic.

Second, if private financing fails, some airlines can and should do what they've done in the past when in such a predicament: declare bankruptcy. Past bankruptcies tell us that airlines can continue flying safely even during a bankruptcy, so there's no systemic risk posed to the economy at large.

To be sure, bankruptcy would mean that, for the time being, airlines may fly on more limited routes. But that shouldn't be a problem in light of a collapse in demand, which won't be resolved as long as Americans remain wary of flying.

There's no easy solution during this pandemic. Many people and businesses have no options at all. But an airline bailout would bring about more negative consequences. The first is that it's a huge expense for taxpayers to shoulder with no promise for a solid return. We've already bailed out the airlines, and all this past coddling has done is to postpone the inevitable layoffs of its excess employees.

Analysts don't think air travel will return to prepandemic levels for several years—some say up to seven. Let's assume that it takes five years for air travel to return to its previous level. That would require taxpayers to extend up to $320 billion in bailout funds to the airlines.

Not surprisingly, bailouts beget more bailouts. My colleagues at the Mercatus Center, Matthew Mitchell and Tad DeHaven, write, "We know from the history of bailouts that the true cost of a bailout is not the taxpayer expense (which is often recouped) but the expectation it sets for future bailouts, an expectation that invites future disaster."
Bailing out airlines the first time around was a bad idea; doing it again would be even more counterproductive. It only delays the inevitable.

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  1. Congress “should” do a lot of things, but hasn’t been doing them.

    1. Congress should also stop doing a lot of other things.

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  3. I say do it. Spend more, fuck it. Lets immanentize the eschaton.

  4. To quote a great movie, ‘ I say let’em crash’.

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  6. I don’t know if it’s true or not or true any more, but I’ve read before that if you total up all the profits of all the airlines since the beginning of air travel you get a negative number. Airlines take massive amounts of capital investment for a dubious return and often flirt with bankruptcy. But as far as the moral hazard of building an expectation of bailouts for “too big to fail” companies, we’ve already crossed that Rubicon. It’s part of the reason the stock market is doing astonishingly well during a pandemic, everybody knows Uncle Sam is just going to twist the dial on the printing presses a little bit more and throw a few more bags of money on the fire if it starts getting chilly.

    1. I take it you see this as a bad thing. Oh no people get to stay employed during a crisis! Think of the moral hazard that comes with not permitting them to starve to death instead!

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  8. This is a serious problem, requiring deep analysis.
    If we let the airlines go under, then it will become difficult for the federal legislature to travel to and from their represented states/districts. They will be forced, forced I say, to spend more and more time either in DC, or with their constituents. Both of those choices are bad. If they stay in DC, more and more useless-to-bad laws will get proposed and even passed. If they stay in their states/districts, the voters will be forced to confront what they have done by electing such an idiot.

    1. They’ll just take private jets instead. Maybe as campaign contributions.

      Or enact legislation that lets the jet owners count each flight as tax-deductible government operations. They’ll think of something.

      I thought it funny that Dr. de Rugy led with clipart of an Airbus A380 in her article against government subsidies for the airlines. How much have those governments plowed into that consortium by this point? 9 digits in Euros? 10??

    2. Just as happend when railroads began to crash and burn (financially) things began to be done that had not been previously. Today railroads (except for the gummit one, ScamTraque) make respectable money, and would do more if gummit were to take six staps back and leave them alone.

      Some airlines have failed in the past Where is PanAm? Fying tiger? Buyouts, mergers,BK sales, etc. Since when did anyone invest into a business with a guarantee they would not fail?

      There are some things airllines could do to make things a lot more pleasant and inviting for passengers. Lets start with anHONEST assessment of the virus itself. How about some REAL numbers, not massaged for the benefit of big Pharma. and the egoes of the gummit poohbahs that have been making it ten times worse than it ever could be? When fear grips the people the people tend to not sitck their necks out.. they don’t travel like they used to.

      Get some REAL science ut there.. actual lab tests on transmission rates of viral particles through the worthless facemasks we are “forced” to slap across our mugs. Its a lie, and the longer it remains in place the longer it will be before life returns to anything lie normal.

      I wanted to travel halfway across the country a couple months back, had the funds for the ticket, the time, etc. But when I read of the chaos, mixed stories, unclear policies, “because WE say so”, etc, I decided to not go. And no, I”m not the least bit afraid “I’ll catch the virus” let alone “die from it”. Not gonna happen. I get insulted often and badly enough staying newr home just by going shopping, buyingp parts, tryign to eat away from home, even at survival lvel… and they want tp run me though the covid wringer into the bargain? Nope.
      If FedGov really want to “save” the airlines, try getting real with the virus nonsense. Near half a millioin people gathered in Sturgis a month or so ago, not wearing masks, not insocial distancing, not afraid to be out and about together as normal humans do.. I think there have been maybe two dozen cases and no deaths in result… but you shouldda heard the weeping and wailing and gnashing of teeth by the control nannies Nor have I read any serious reports of any nasty spikes of the disease resulting from all the unmasked close quarters mising it up in all the rioting going on across the nation, now into its fourth month, and no virus spikes on record tracing to those activities. Now, some have died of lead poisoning but that’s no result of the viral mandates. Yet we can’t get into a big tin can in the sky without playing hospital and bringing along Paranoia for the ride.

  9. Air travel will likely not recover to pre pandemic levels for a decade. Given the nudge toward on-line conferencing, businesses as the major driver of airline profit, will just not return to as much travel. And leisure travel will remain low too, as people who have shifted their travel focus to road trips, or newly acquired travel trailers will tend to continue down that path.

    Airlines will shrink, they will need to reduce employment. Do it now, rather than keep hundreds of thousands of employees sitting around collecting a check for a job that they will never again be called upon to perform. For currently furlowed airline employees, sitting around waiting for another round of bail out is not a plan; time to get another job.

  10. Fuck the airlines. They still won’t give refunds for services they canceled. My extended 2 year credit means nothing. Still deciding if it is worth seeking legal council to file a lawsuit.

  11. Do airlines have unions? If so, when Biden wins and Dems take both houses, do you really think the airlines will be turned down for more giveaways? Remember what happened to GM.

    1. Won’t just be the airlines lining up to suck dem dick, deep blue states who were already screwed with pension obligations before COVID, hotels, restaurants, universities, entertainment will all demand their share and the dems will be only too happy to throw open the coffers. We are already starting to see inflation, it WILL get worse.

      1. Yup. The Burn and his skanky sidekick both are pushing socialism. That’s exactly what you’re describing.

  12. The economic collapse was a self inflicted wound. It did not need to occur and there is valid scientific reason to prolong the infliction.

  13. Unless you believe that air travel will become obsolete, it’s a terrible idea not to bail them out. You’re applying the “propping up an obsolete industry” logic to a special circumstance where it’s merely temporarily offline. Once again you’re asking people to suffer in sacrifice to a nonexistent market ideal. Sell off their assets? Sell airplanes and airports to whom, exactly? Bankruptcy? Okay fine but that’s just another word for government bailout, except without helping any workers. It’s almost as if the sadism of punishing workers is the whole point of fiscal austerity.

    What about other industries unfairly not getting bailouts? Fair point. Bail them all out. Spend the money to keep everything afloat until the disaster is over. What’s the downside? A big national debt? Even if we think that still matters (and it’s a Republican president, so it obviously doesn’t right now), government revenue doesn’t exactly surge in times of economic collapse.

    Just like bailouts, the market mechanism is a tool. We should not be its tool.

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  16. Chapter 11 is the best! Leave a nice check and an AMG G63 in front of the bankruptcy judge’s house, and in return he/she will sign off on the most outrageous “rationalisation measures” by you and your C-suite friends, such as firing all current employees without compensation tomorrow and hiring new ones right after at minimum wage, selling off most assets and renting/leasing them back afterwards, delisting the company’s stock and floating new shares a week later. Then, of course, assign a medium double-digit bonus to all C-executives in the first year, as a retention incentive, and allocate 500.000 shares to everyone from the top down to the VP level. If you already have mansions in Montauk and Scottsdale, buy a palace in the Bahamas, or get yourself a gulfstream in addition to your yacht. And a few years later move on to another corporation. While your former employes stand in line around the block with their food stamps after they’ve been evicted from their apartments or their houses have been foreclosed, or they simply rot to death on the streets, like everywhere in this greatest nation of them all. To hell with those socialists and their disgusting workers’ rights mindsets!

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