U.S. airlines have banded together to warn that absent immediate aide from U.S. Congress, jobs will soon be lost. The letter amounts to extortion, even as U.S. airlines finally begin to take on a more sensible narrative.
Let’s start with the letter, which was sent over the weekend to the Senator majority and minority leaders as well as the Speaker of the House and House minority leader.
Dear Leader McConnell, Leader Schumer, Speaker Pelosi and Leader McCarthy:
On behalf of 750,000 airline professionals and our nation’s airlines, we respectfully request Congress to continue to move expeditiously to pass a bipartisan proposal that includes a combination of worker payroll protection grants, loans and loan guarantees and tax measures.
Time is running out. The worker payroll protection grants are critical to saving the jobs of our employees. Over the past week we have communicated to our employees the dire situation we are in and the potential impacts on them if our government doesn’t step up to help.
We are doing our part. Over the past decade we have reinvested over 73 percent of our operating profits back into our people and product, creating good paying jobs at a rate that has outpaced other sectors. As a result of a global pandemic and government actions to contain it, we are now undertaking over $30 billion of self-help measures, including asking our employees to take voluntary unpaid time off, parking planes and trying to obtain financing in today’s credit market. Those markets are closing up. Given the extreme nature of this situation, we respectfully urge Congress not to pursue opportunistic measures that will hurt, not help our ability to recover. Unless worker payroll protection grants are passed immediately, many of us will be forced to take draconian measures such as furloughs.
If Congress is able to reach a bipartisan agreement on these three critical elements, airlines are committed to ensuring that:
- If worker payroll protection grants are enacted, equaling at least $29 billion, participating passenger and cargo air carriers will not furlough employees or conduct reductions in force through August 31, 2020.
- If loans and/or loan guarantees are enacted, equaling at least $29 billion, participating passenger and cargo air carriers commit to:
- Placing limits on executive compensation;
- Eliminating stock buy backs over the life of the loans; and
- Eliminating stock dividends for the life of the loans.
The breadth and immediacy of the need to act cannot be overstated. It is urgent and unprecedented.
We are united as an industry and speaking with one voice. We urge you to swiftly pass a bipartisan bill with worker payroll protections to ensure that we can save the jobs of out 750,000 airline professionals who are coming to work every day to serve the traveling and shipping public.
The letter was signed by US airlines CEOs, including Alaska, American, Delta, Hawaiian, JetBlue, Southwest, and United. It was also signed by cargo airline executives.
My Thoughts
As I argued last week, I remain principally opposed to a bailout. This is a very difficult issue for me for a number of reasons:
- I know so many airline employees and know the entire COVID-19 saga has negatively impacted them through no fault of their own
- Airlines are integral for all of my businesses and also to connect my families across the Atlantic
- There will be a tremendous ripple effect of economic calamity if airlines jobs are lost or an airline fails
- Government restrictions have barred some airlines from flying to destinations (I don’t view this as a Fifth Amendment Takings, but that’s another discussion)
- Bailing out hundreds of thousands of workers later on might end up costing more than a bailout now
I’m not anti-airline. I’m not bitter or hostile because my frequent flyer benefits have been cut. Nor do I want to see U.S. airlines hurt. Quite the contrary, I want them them to thrive.
But at what cost? That is the question we must ask in a sober-minded way as Congress debates a rescue package.
Let’s start with the low-interest loan. Airlines want at least $29BN. I’m all for it, especially with the strings attached above. I’m not convinced that it can save airlines from bankruptcy if the world remains on lockdown for 2-3 more months, but a loan in this critical field is not a bad thing. Let’s not forget a similar loan to banks during the Great Recession eventually led to profit for U.S. taxpayers.
But the direct aid of at least $29BN? Airlines say this is for payroll. They promise that if enacted, there will be no layoffs or furloughs until at least August 31, 2020. Let’s crunch those numbers in a most superficial way, because even that is revealing:
- Alaska Airlines – 23,000 employees
- Allegiant Air – 4,000 employees
- American Airlines – 129,000 employees
- Delta Air Lines – 90,000 employees
- Frontier Airlines – 21,000 employees
- Hawaiian Airlines – 7,000
- JetBlue – 22,000 employees
- Southwest Airlines – 61,000 employees
- Sprit Airlines – 8,000 employees
- United Airlines – 88,000 employees
- TOTAL ~ 453,000 employees
I’m using round numbers, but let’s say there are 453K airline employees (and yes, I know there are over 20,000 UPS pilots, 4,500 FedEx pilots, and other potential recipients as well). Take that $29BN that is supposed be used for payroll and it amounts to over $64,000 per employee.
That’s quite a lot for a period that may only last until August, even noting the multiplier effect that airline jobs produce…
I studied law, not finance. You’re welcome to explain why this won’t work in the comment section below, but I’d say that if airlines want a government bailout, they need to issue the government a tremendous amount of stock. I don’t want to use the word “punishment” but shareholders should not be given a free gift; their value should be diluted.
In theory, I’m not even against stock buybacks, recognizing them as a longstanding vehicle used to return money to investors across all industries. But when executive compensation is tied to stock price, a perverse incentive is formed to juice up stock prices in a way that is not helpful to the long-term health of the company. American and Untied were particularly guilty of this over the last few years and I think any bailout should retroactively claim back the lavish bonuses paid to Kirby, Munoz, Parker, and others as a condition of funding. This will give these executives (and others who have benefited) an opportunity to put their money where their mouth is.
CONCLUSION
I want U.S. airlines to survive. I want them to thrive, too. We certainly don’t need a new era of bankruptcy and consolidation that only leaves us with a couple airlines. But I’m not falling for the scare tactics and extortion from the airlines. Even though I remain principally opposed to bailouts as the entire economy, even my own businesses, face collapse “though no fault of our own”, I know that airlines have been hit particularly hard.
The question now is how we best proceed in a way that does not unfairly reward airlines but also accurately calculates the price of not acting.
Oh, and for goodness sakes any government aid should be conditioned upon airlines immediately refunding money to consumers when their flight is cancelled. This idea that airlines can hold on to consumer money is just thievery.
Self made men don’t whine to Congress for a bailout.
Congress should ask warren Buffett to step in provide them with bailout with appropriate terms that a capitalist would demand. He is looking to invest anyway.
But for every airline employee I guess there are several outside of the airline that work in jobs dependent on airlines. Even going down to the person working in the newspaper stand at the airport. If say AA fails, it isn’t just 129K employees out of a job its likely much much more.
And I mention that in my post. But can’t the same be said for so many jobs in our integrated economy?
Exactly. The writer obviously didn’t think much about the overall ecosystem of suppliers and contract workers that are affected. This article should be updated with that disclaimer otherwise they are just trying to rile people up over purposely simple math.
You obviously never read the story, because I mentioned it explicitly and also mentioned it in my previous article on the topic:
https://liveandletsfly.boardingarea.com/2020/03/19/why-i-oppose-airline-bailouts/
Furthermore, who needs catering, cleaning, uniforms, fuel, and other essentials when no planes are in the air? Airlines are asking for a way to pay workers while not flying. They’re not going to be pay contractors…
I don’t support airlines alone being supported, the industry as a whole needs to. The same can indeed be said for many jobs but I don’t think you can quite compare it to how dependent things are in this industry. Literally down to the airport kiosk, the taxi and bus drivers at airports, then going to hotels, the businesses dependent on the cargo shipments etc. The domino effect is huge if an airline fails. Again, ALL those affected need support (as they do in many European countries now) but you can help support the workers in related functions that can’t work temporarily but if you let the big airlines fail then there won’t be anything at ALL for those workers to come back to either. The economic impact is too big to let that happen.
How is this extortion.. Imagine no airlines…imagine having the choice of routes today that you had in the 1980’s… not only do you put thousands of highly skilled workers out of jobs, you destroy the American/World dream of travel and the economical benefits that attach to it. Pilots…mechanics…engineers… 10’s of thousands of dedicated professionals who are ready to get ramped up when we can.. put us all out of work and the economy will be 10x slower to recover. I cannot stand airline CEO’s (or an CEO’s) but they are right… govt needs to intervene fast and air travel world wide must be resumed in order for us to recover.
Shareholders first need to lose their stock value, then let the government step in to help airline rebuild.
So all the airlines should first file BK?
Or issue more shares of stock that will be held by the U.S. government on behalf of U.S. taxpayers.
Don’t support the Moscow Mitch proposal that has minimal consumer protections and no hard and fast language against stock buybacks
DO support Speaker Pelosi standing up for individual consumers
My dear Republican colleagues,
Romney got the china CCP virus. Trump made an inappropriate comment. I am giving you this space to express your outrage about his comment. Just like you get outraged by my comments. Or you will just reinforce my notion, what a bunch of hypocrites you are.
Also this:
https://www.reuters.com/article/us-health-coronavirus-china-cdc-exclusiv/exclusive-u-s-axed-cdc-expert-job-in-china-months-before-virus-outbreak-idUSKBN21910S
This is completely on diaper baby trump
Don’t you get it??? Trump cares nothing for people except for preaching to his base. Like you, I find that comment extremely offensive, but then i realize his briefings are very offensive, except to his base. For unfiltered viewing tune in to CSPA and then you can make your own decisions and you don’t have listen to talking heads on what to think.
The airline executives are greedy, corrupt slimeballs, who could care less about the safety and comfort of their passengers, as well as their employees. All that they are interested in doing, is greasing their own palms. In some countries, when there is a fatal airline accident, and the airline is clearly at fault, the local authorities will arrest and imprison those airline executives for culpable negligence, and homicide. Yet, in the good old USA, when such accidents occur, and the NTSB finds that a particular airline had a habit of ignoring or even suppressing maintenance problems,(resulting in a fatal airline crash), the airline executives, are never held criminally accountable. Therefore, Uncle Sam should give s—- to the airline companies. Let them sink or swim, on their own volition.
Extortion? This is a fact. If airlines don’t receive assistance from the government they will have to lay off most people (hopefully temporarily). They have billions in cash for plane loan and lease payments and to maintain and store their aircraft. They can do this for a year. They don’t have enough to maintain payroll for more than they have been doing these 2 months. Airlines were trying to be nice and allow people to remain on payroll but the false narrative against the airlines means they are better laying off people if the alternative is strings attached funding that will cripple the ability of the airlines to be productive and profitable in the future. Why should shareholders not receive assistance when employees will receive welfare in the form of unemployment insurance or checks that they don’t have to pay back. Unions have extorted airlines for years with high pay and benefits for flight attendants who perform poor service. If I were a shareholder I would say fire everyone and accept no government money. Their mistake was being nice.