Economics

$75 Billion in Band-Aids Won't Cure Ailing Airlines

Airlines keep claiming they need a second bailout to bring back 35,000 furloughed employees. Don't buy their argument.

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Regal Cinemas announced in early October that it will temporarily close all 536 of its U.S. locations as the COVID-19 pandemic continues to keep customers away. This move affects about 40,000 employees across the country. Yet nobody in Congress is talking about a bailout for theaters.

Now compare that with the airline industry.

In April, Congress passed a $50 billion bailout for the airlines, including $25 billion in subsidized loans and another $25 billion meant to keep most airline workers employed until the end of September. As predicted, since consumers were not yet ready to fly, this taxpayer-funded band-aid only postponed the inevitable.

American Airlines and United Airlines furloughed 32,000 employees in the fall, claiming they had no choice without another $25 billion. So House Speaker Nancy Pelosi (D–Calif.), President Donald Trump, and many Senate Republicans drew the obvious conclusion: The bailout should be bigger.

Advocates of the additional $25 billion bailout say a new injection of funding will be used to restore 35,000 jobs. But as my colleague Gary Leff and I show in new research published by George Mason University's Mercatus Center, the math doesn't add up.

Assuming an average annual salary of $100,000, supporting 35,000 airline employees for six months—the time covered under the new proposed bailout—should cost a total of $1.7 billion. Yet airlines are asking for $25 billion, which works out to $715,000 per job temporarily saved. A more plausible explanation is that—as with the first bailout—airlines are planning on using taxpayers' money, rather than their own, to cover the salaries of those who are at risk of furlough and the salaries of employees they have no intention of furloughing.

Airline representatives have argued that another bailout would not only help them bring back furloughed workers but also protect workers who went on leave back in April to avoid termination. Don't buy it. First, there is no indication that airlines plan to furlough those people. If they did, they would have had to notify them 60 days in advance, which they have not done. Second, the concern that airlines will make additional, yet-to-be-announced furloughs strengthens the argument against payroll support. If airlines feel a need to furlough on-leave workers who aren't currently costing them a dime, that suggests the industry is not expecting to do better anytime soon.

Some companies are taking a different approach to retaining their employees. Southwest Airlines, for example, is asking its labor unions to accept pay cuts through the end of 2021 to prevent furloughs and layoffs. Singapore Airlines has done the same.

Airlines also have access to capital markets and have many durable assets they can sell or use as collateral to secure additional financing, even during a crisis. And even without sacrificing these lucrative assets, airlines can turn to their credit-card-issuing partners for liquidity, as they have in response to past financial challenges.

Sadly, as long as demand for air travel remains deflated, there will be no way for airlines to avoid slimming down their payrolls. Subsidies provided under the cover of payroll programs are not necessary to protect an industry that can, and perhaps should, pursue restructuring through bankruptcy. Airlines can continue to fly safely during this process as a judge imposes a stay on creditors' claims and gives the carriers breathing room until consumers are ready to come back.

Unlike special favors granted by Congress, the bankruptcy process is equitable. It shifts the cost of the crisis onto airline investors, who make good returns during good times in exchange for shouldering the decreased value of their investments during bad times, instead of taxpayers. Without another bailout, the skies that the airlines fly will be fair as well as friendly.

NEXT: Brickbat: Closely Tracked

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  1. It shifts the cost of the crisis onto airline investors, who make good returns during good times in exchange for shouldering the decreased value of their investments during bad times, instead of taxpayers.

    Have you seen the stock market lately? You know why it’s at record highs despite the economy being in an extremely perilous position just now? Because we’ve decided to privatize the profits and socialize the losses, everybody gets a bailout these days, there’s no risk in investing in big companies, the stock market only goes up. It doesn’t matter whether or not throwing big bags of money at companies with a proven track record of being very bad stewards of that money makes any economic or logical sense, it makes political sense and that’s all that matters.

    1. Pretty much this. If things can’t fail, bad ideas just keep going in the marketplace.

      1. And if individual people can’t fail (and suffer the consequences), bad ideas just keep going in the population.

    2. I’m ready for the Biden Bump!
      Golden bull run ahead, lads.

      1. As soon as some of the controls are removed and the economy recovers a little, I look forward to reading effluent praise about how Harris saved America from the Trump depression.

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  3. Why bailout an industry that AOC and the gang are going to drop down the same hole as the energy sector? Spend the money on railroads instead.

    1. Spend it on steel production, since it will take the equivalent of 5 years worth of the total US steel production to produce the approximately 1 million miles of new rail lines required by that plan. And ‘5 years worth’ is only that short if we don’t use any steel for anything else – cars, buildings industrial machinery, consumer products – anything.

    2. I’ve always wondered why Nazis don’t have the same obsession over railroads that all commies seem to have. I think it might stem from Holocaust denial but I can’t be sure.

      1. The Nazis were heavily reliant on rail transport. The autobahn was a makework project. Troops and equipment were moved by rail because they didn’t have nearly enough oil.

        1. They were also heavily reliant on horses. The number of Wehrmacht equine that died during the war is appalling. The methane and dead horses are still preferable to internal combustion to a progressive.

          1. Yes. Contrary to myth, the Wehrmacht was not heavily mechanized. Last mile logistics was often handled by horsecart.

        2. It’s hard to believe it was a makework project except in the beginning. Sure, it was a typical Hitler fascination project. One that he adopted from earlier work begun during the Weimar Republic such as the HaFraBa project which was intended to be a car only and point to point style limited access road that freeway planners in Cali have no concept of.

          Not a direct dig at Cali as many states still don’t grock the concept of limited access. That said, my advice for Cali’s SR-57 would be to get rid of any entrances that aren’t the following: I-210, I-10, SR-60, SR-90, SR-91 and either I-5 or SR-22 at the Orange Crush but not both. Exits are fine, limited access means limiting access. Yes, surface streets will do what they’ll do anyway so get over it and all the Cali kids at Reason know this ex-temp-Cali kid is right.

    3. Wind-powered trains!

      Thanks, Greta.

  4. It’s looking like many airlines won’t let me fly without a COVID-19 vaccine. Let them rot until they learn how to earn my business.

    1. You will get vaccinated and you will sign the anti-racism statement before boarding the airplane. What are you going to do? Start your own airline!

      1. Take the mark or bUiLd y0ur oWn aIrLiNe.

        1. Planes are pretty cheap right now.

    2. You are behind the curve; I haven’t been in an airport since they suspended the constitution there after 9/11.

  5. In my opinion the airlines are screwed for the time being no matter if they get a bailout or not. There entire profit margin depends on business and first class passengers, we little peons in coach at most break even. All the sales and tech meetings are happening by conference calls these days and that was the big business class ticket buyers. Now that customers have gotten use to meeting this way I don’t see it changing back anytime soon. What will happen soon if it has not happened already is prices for economy class will go up to make up the difference. This will discourage flying vacations, that will suppress customers…so it is a vicious circle.

    1. Maybe they wanted all that bailout money for the inevitable golden parachutes?

    2. Airplanes had it good for two decades with a mostly booming economy and globalization. Businesses wanted to do business and were happy to fly employees around to where people where. Other people found themselves with cash and decided to go on vacation, or see grandma more than one a year. We had a boom in cheap commuter and tourism airlines: Alaska, Horizon, Southwest. The big three (‘Murican, United, Delta) had to ease up to compete.

      Ten flights a day on just one airline from the my nearest airport to Bob Hope or John Wayne. And it was convenient despite the TSA.

      That is not over. Probably permanently. First is the pandemic. Even when it goes away it will take a long long time before people are comfortable traveling in tightly enclosed spaces with strangers. Then there’s the new protectionism that is killing globalism. There will still be business to do in Germany, but it will be via massive multi-nationalism, there’s no room for the small businessman in a protectionist world. When you need to be on handshaking terms with the president to do business, only with on handshaking terms with the president will do business.

      No sense in bailing out airlines who are going to go under anyway.

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  7. Ending the lockdowns would help airlines. But not by much. Because people will still refuse to travel in tightly enclosed spaces with strangers until a vaccine is rolled out to the complete populace.

    1. Millions traveled during thanksgiving. Your assertions are false as usual.

  8. Yet nobody in Congress is talking about a bailout for theaters.

    This should make it easy for the theaters to follow (or any industry that can pony up enough for step 1.):

    1. Provide $ to lobbying firms, many which employ former members of Congress: https://www.opensecrets.org/revolving/top.php?display=Z

    2. Lobbying firms use their connections for congress to transfer $$$ to specific industry in the form of bailouts (“stimulus”, “recovery acts”, whatever)

    3. Repeat step 1. as necessary

    1. Having union employees helps.

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  10. Well, the same companies that build airline jets also build military jets, and are in damn near every congressional district in the country.The feds would rather have the overhead spread around a few civilian companies, even if they have to prop up those companies.
    Otherwise, the cost of bombers and fighters and radar planes would be even more outrageous, not to mention all those union employees who vote for democrats.

  11. I am an investor in both UAL and AA…throwing cash at them will help my stock price but it will not help save the airlines. Letting people travel will save the airlines. I am not a tin foil hat, COVID denier, but I also know that most people get sick and get well. Most people do not need to go to the hospital to get well. If they choose to travel, let them. The elderly and people with high risk health conditions should stay home.

    1. Nah, it’s way more fun to clamp down on the populace. Leftists everywhere have been running around with permanent hardons since March. Rules, rules and more rules! Yipeeeeee!!!!!!!!!

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