Airlines have reportedly asked for an additional $32bn in new bailout money to weather the Coronavirus crisis, but it’s time for the US taxpayer to say “tough luck.”
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Previous COVID-19 Bailout
The US Government included a more than $25bn bailout for US carriers assuming they adhered to maintaining their employees and avoid mass layoffs until at least September. The bailout was also not a true bailout in the sense that the money was both conditional and included some of the funds distributed as loans.
The financial support was in connection with a $2.2 trillion emergency support package from the US Government to businesses.
I argued for a bailout for the carriers initially to protect jobs because it’s cheaper to pay workers not to work for a limited time and keep them ready for a travel ramp-up than put them all out of work indefinitely. I am happy to revise a previous opinion when I find new information or a reason to alter it. However, in this case, there were simply too many unknowns and I still feel that was the right direction at the time.
The Airlines Need More Money
The carriers originally asked for more than $50bn in support from the government but were granted half of that amount. Still, carriers are asking for a further $32bn. While not reported to have come up in discussions at the White House this week with Vice President Pence, it’s sure to have been discussed in the hallways while the heads of the carriers were in Washington.
Many carriers have found support through funding from creditors, mortgaging their loyalty programs, and handing out generous retirement packages for those who choose to end their careers with their carrier.
But it’s still not enough.
This Isn’t The Taxpayer’s Responsibility
The argument in previous posts was that the airlines should be bailed out to avoid massive layoffs and the potential for carriers to enter a bankruptcy they could not exit. The expense on the taxpayer and, ultimately, the economy as a whole would have been far greater than applying a temporary – though massive – bandaid to help them weather the coronavirus crisis.
However, these businesses are not owned by the taxpayer. While the government initially caused some of the pain airlines felt by restricting international routes heading into the busy summer season, other governments did as well. That’s a global issue and not one that the government is responsible for creating, nor the people who support it.
The taxpayer has been generous despite being slapped in the face by the carriers. Just weeks after the bailouts were agreed in which job loss would not occur through at least September, some CEOs stated those job losses would now come in October. That wasn’t the intent of the funding. The intent was to provide an extraordinary temporary relief to overcome a temporary problem and allow airlines to resume normal activity following its expiry. The taxpayers did that.
Airlines have secured funding from their banking partners, sold assets, and mortgaged some of their loyalty programs. There are still other options. Airlines did not fully extend themselves, and American Airlines already said they believe the carrier will no longer be burning cash by the end of the year. United valued MileagePlus at more than $15bn but mortgaged just $5bn of the program. American acquired a valuation of $31bn for its Advantage program but hasn’t mortgaged any of it.
They could merge, they could liquidate seats on routes they are still flying, they could sell miles for less than they already are – they have options.
Airlines are businesses like any other. The carriers were more fortunate than some businesses that didn’t receive the same generous package and have fewer options to leverage with financial institutions. It’s simply not the taxpayer’s responsibility to insure a profitable business due to a pandemic outside of anyone’s control.
What do you think? Should the taxpayer pick up the tab again? Do airlines need more bailouts?