The White House and Republican leaders are rebuffing the U.S. airline industry’s request for emergency government aid heavy on cash grants as policymakers and lawmakers assess the political fallout from bailing out an industry with recent record profits after workers made concessions during bankruptcies and mergers.
Airlines are aggressively downsizing operations, slashing costs and seeking additional financing to stay afloat in the short term, but they fear it won’t be enough.
The carriers seek a combination of grants, loans and tax relief totaling $58 billion, but news organizations report the White House appears to prefer $50 billion in loans. Airline CEOs are in Washington this week arguing that a cash infusion is necessary to keep companies, which are hemorrhaging millions of dollars every day, viable until the economy recovers.
European and Canadian airlines are asking for similar help from their governments.
On Thursday afternoon, a coalition of aviation stakeholders urged quick U.S. action on a rescue package.
“We now face a legitimate liquidity crisis and questions about our ability to meet ongoing debt obligations. This crisis hit a previously robust, healthy industry at lightning speed, and the government response needs to be just as swift, in order to save it,” groups representing airlines, labor, general aviation, the travel industry and manufacturers said in a letter to Treasury Secretary Steven Mnuchin and congressional leaders. “Our concern is compounded by the fact that the crisis does not appear to have an end in sight.”
More than 60 governors and mayors also wrote, urging immediate, medium- and long-term assistance for airlines, citing their importance to local economies.
The airline industry proposal calls for $29 billion in grants, $29 billion in government loans and loan guarantees, rebates of excise taxes paid in the first quarter into the Airport and Airway Trust Fund, and the temporary repeal of all the federal excise taxes on air carriers, including on tickets, cargo and fuel, through Dec. 31, 2021. The grant and loan requests include $4 billion of each for cargo airlines.
Any bailout will be part of a larger economic stimulus package that could top $1.3 trillion, which is currently being drafted by Senate Republicans and likely won’t be ready until next week, according to Politico.
But many Democrats, labor groups and passenger advocacy groups are demanding strict conditions on any airline bailout, saying companies squandered money on stock buybacks in recent years to keep stock prices high, rather than to protect themselves financially.
The Big Four airlines — Delta, Southwest, American and United — together repurchased $39 billion worth of stock over the past five years, according to Seeking Alpha, much of it since passage of massive corporate tax cuts in 2017 pushed through by President Donald Trump and Republicans.
“Our motto is this: workers first,” Senate Minority Leader Charles Schumer, D-N.Y., said Thursday on MSNBC’s “Morning Joe.” “We know we have to keep them [airlines] going. We don’t want to give them money unless they keep all their employees, don’t cut salaries of employees and these buybacks infuriate me. We should not be allowing them to do buybacks or raise corporate salaries.” He added that any rescue package should require proceeds from buybacks be clawed back, although how that would be done is unclear.
At a news conference Thursday, Trump said he’s “OK” with forbidding buybacks as a condition for any bailout.
Sens. Richard Blumenthal, D-Conn., Edward Markey, D-Mass., and Elizabeth Warren, D-Mass., also decried aid to airlines without strings attached.
“Airlines in particular have been fleecing flyers for years, tacking on high fees, and shortchanging safety,” Blumenthal said in a statement issued by his office. “Instead of investing previous stimulus funds into better working conditions for flight attendants, pilots, and their customers, they spent it on stock buybacks and sky-high corporate bonuses. … This is not the time for sweetheart corporate deals and blank checks — workers and consumers must come first.”
In a letter to union members this week, Todd Insler, chairman of the Air Line Pilots Association’s master executive council for United Airlines, criticized the airline for not building up cash reserves despite repeated recommendations to do so. “We will insist that any short-term impact and pain necessary to get through this crisis will be shared by all stakeholders — management, fellow employees, and vendors. In the future, there will be time for blame, reckoning and restitution — I assure you of that. For now, we need management to focus on the enterprise, and we need to work together to survive.”
Aviation unions, in a letter to senators, said government aid to airlines after the 9/11 attacks failed to prioritize workers and instead helped shareholders and executives. Then airlines took advantage of the bankruptcy process to wring concessions from labor and dissolve pension plans as part of their restructuring.
Austan Goolsbee, a professor at the University of Chicago and the former chairman of the White House Council of Economic Advisers under President Obama, offered advice based on his experience managing the 2009 financial crisis and the bailouts of Wall Street and the auto industry.
“If you’re going to bail out specific industries, if you don’t have a framework to explain why these guys get money and these ones do not, and if you don’t pay close attention to what is going to be demanded and expected that those companies will do with the money — so if you just hand them money and they, let’s say lay off a bunch of people after that or pay bonuses to themselves, there will be a huge backlash by the taxpayers, who will say, ‘Hey, why did we bail out the CEOs and management? Why didn’t we bail out workers?’ ” he said on MSNBC’s “Meet the Press Daily.”
He also suggested that the government require an equity share in companies that get aid so that some of the profits made in the future are shared with taxpayers, as was done with the auto bailout before the government divested.
Helane Becker, chief airline analyst at Cowen, an investment bank, defended the industry’s request for emergency aid, saying the government is partially responsible for the current situation and that airline executives have taken significant reductions in salary during the crisis.
“Airlines were prepared for a garden-variety recession . . . not an all-out assault on the industry . . . This is not a bailout for shareholders. In fact, calling it a bailout isn’t even correct. It’s a lifeline for employees. . . . None of the U.S. airlines has mentioned furloughs or layoffs. They have frozen hiring,” she said in a research note. “Given the complete lack of current demand, we believe the airlines should probably shut down their operations [for two to five weeks], park all of their aircraft and furlough every one of their employees [except for a skeleton crew] until such time as demand returns.
Airlines employ 741,000 people and the industry supports 10.1 million jobs, according to U.S. Department of Transportation data. Becker noted that average salaries are high now. Airlines have increased pay, expanded payrolls, modernized fleets, introduced profit sharing and funded pension plans as their finances have improved.
“Obviously, that’s a draconian measure, but it would conserve cash, and that’s what they need to do now. The misinformation is that airlines are going to use the money to do something that doesn’t involve keeping some operations going, to keep the U.S. economy moving, even at a low level, while keeping as many of their union employees on staff as possible,” Becker said.
Delta, for example, has more than 1,000 aircraft in its fleet and about 14,600 pilots. About 549 pilots are eligible to retire this year, and they should probably do so now, Becker said. Delta says it will ground 600 aircraft. The company has about 14 pilots per plane (about 10 per narrow-body aircraft and 16 per widebody aircraft). Putting 600 planes on the ground means that 8,400 pilots would be redundant, not to mention flight attendants.
Business columnist Andrew Ross Sorkin argued in The New York Times that industry bailouts raise divisive debates over fairness and that the government would do better to give every self-employed person and business a “bridge loan.”
“The program would keep virtually everyone employed — and keep companies, from airlines to restaurants, in business without picking winners and losers,” he wrote.
Meanwhile, the aerospace manufacturing sector is separately seeking $60 billion in government aid, and airports have told Congress they need $10 billion cash grants to weather the economic storm.
In a letter to congressional leaders, airport trade associations said their members will have difficulty meeting $7 billion in bond principal and interest payments due this year without help. “No U.S. commercial service airport has ever defaulted on a bond payment. Allowing a default now would be devastating for any affected airport and the entire industry, as future borrowing costs would increase significantly,” they said.
The airports expressed support for direct financial assistance to airlines but not for repeal of taxes that go to support airport infrastructure and operations.