An Extortion Proposal From US Airlines To Congress

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.

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