Will a US airline bailout come with serious strings attached?

Airline workers and many economists say Congress should not just give a blank cheque to the struggling aviation sector.

Empty plane
US carriers are looking to the federal government for immediate assistance to help cushion the blow from coronavirus travel disruptions [File: Carlos Barria/Reuters]

The coronavirus outbreak is rampaging across the balance sheets of airlines around the world, as countries close borders, people shelter in place, and travel grinds to a halt.

In the United States, carriers are looking to the federal government for immediate assistance to help cushion the blow that the pandemic has delivered to the industry.

Hundreds of thousands of jobs are directly on the line, the US airline trade body – Airlines for America – has said, as are millions of other jobs tied to the industry.

The White House is proposing a $50bn bailout in the form of secured loans. “No one can be blamed for this,” President Donald Trump said during a news conference on Wednesday, defending his administration’s plan to save airlines. “We went from full planes to, boom, empty.”

But many are questioning why – after an 11-year economic expansion – US carriers are not in a better financial position to weather the coronavirus storm. And a growing chorus of voices – from unions to politicians – are demanding that any bailout package airlines receive ensures that it is not just shareholders and executives who dictate how the funds are spent.

Others want industry-wide reforms to boot. But some free-market economists say the government needs to focus on the public health crisis first, and that if the airlines cannot compete, they should just be allowed to go bankrupt.

‘Uncharted territory’

An analysis by Bloomberg found that between 2010 and 2019 the biggest US airlines spent 96 percent of the money they had left over after covering expenses and capital expenditures buying back their own stock.

Stock buybacks are heavily criticised because they do nothing to boost productivity and effectively serve as stealth dividends that enrich shareholders and the pay packages of executives who are compensated in part by stock. 

As bailout talk intensifies in Washington, the blowback against buybacks is turning decidedly bipartisan.

On Thursday, Trump told reporters he would be “OK” if the $1 trillion-plus stimulus bill under discussion on Capitol Hill bans firms that receive bailouts from using government funds to buy back their own stock or pay executive bonuses.

Earlier this week, Trump’s polar opposite on the political spectrum, self-described democratic socialist, New York Congresswoman Alexandria Ocasio Cortez, also called to prohibit stock buybacks with bailout money. 

And preventing airlines from using taxpayer money on such shenanigans is not just a focus for politicians. Airline workers want those restrictions too. And they want any aid package to put the needs of employees front and centre.

Sara Nelson, international president of the Association of Flight Attendants has said that while Congress must protect flight attendants’ paycheques, she believes “any stimulus funds for the aviation industry must come with strict rules”, including maintaining pay and benefits for every worker and “no taxpayer money for CEO bonuses, stock buybacks or dividends”.

Joseph G DePete, international president of the Air Line Pilots Association (ALPA) also told Al Jazeera that legislative or regulatory proposals to stabilise the aviation industry must address labour concerns.

“Airline pilots have already been furloughed as a result of COVID-19,” DePete said in a statement. “More furloughs will surely follow if we fail to address this challenge as partners.”

‘Keep this industry alive’

A 2019 Gallup poll found that 23 percent of Americans have a negative view of airlines. Viral videos like the now infamous 2017 clip of a passenger being dragged off an overbooked United Airlines flight after he refused to give up his seat have only reinforced opinions that airlines put profits before people.

On a global scale, US airlines fare poorly in customer experience rankings. Not a single US carrier managed to crack the top 35 list of the world’s best carriers compiled by Skytrax last year.

Many blame an inherent lack of competition among US airlines following a wave of mergers that has left only a handful of carriers controlling the market.

But analysts say that for all its flaws, the airline industry is still a vital component of the US economy and should not be allowed to go under.

“We need to ensure that our infrastructure is not destroyed by this pandemic,”  said Mike Boyd, president of aviation forecaster Boyd Group International. “We must keep this industry alive, and it will die without a bailout,” he told Al Jazeera.

Clifford Winston, an industrial and transportation economist at the Brookings Institution, says a bailout is warranted, but it should only happen if accompanied by major reforms to the aviation sector.

“We went through this during September 11th and the Great Recession when the airlines had trouble,” said Winston. “It’s a familiar theme with this industry.”

“The hope was they’d be able to respond better during a recession, but there are still a lot of inefficiencies,” he told Al Jazeera.

While Winston agrees that the airlines are not responsible for the black swan that is the coronavirus pandemic, he says that opening up US airlines, airport and air traffic control markets would inject some much-needed competition into the industry.

“If they just take this naive approach of transferring funds, [the government] is missing the opportunity to provide broad benefits in the long run,” said Winston, adding that “the real loser is us, the flying public”.

But some economists believe talk of a bailout should wait until the public health crisis of coronavirus is under control.

“Airlines can go into bankruptcy and continue to fly,” said Veronique de Rugy, a senior research fellow at George Mason University’s Mercatus Center. “You can bail out the airlines, but if people aren’t going to fly, it’s not going to make a difference,” she told Al Jazeera.

In the long run though, de Rugy believes airlines could even benefit if the taxpayers do not come to their rescue.

“It’s better to let the airlines go bankrupt and figure things out,” said de Rugy. “Let them become more effective and better fit to serve consumers on the other end.” 

Source: Al Jazeera