The Secretary of the Treasury has joined calls for another $25 billion to U.S. commercial airlines in exchange for a continued ban on furloughing workers through March 31. He knows that,

• With just 35,000 employees facing furlough in October this amounts to over $700,000 per job. This is mostly an airline bailout, rather than furlough protection.
• Airlines have plenty of liquidity, he’s just signed off on subsidized loans to 7 U.S. airlines (Delta and Southwest turned down the money, American could borrow as much as $7.5 billion).
• Small towns don’t have to lose air service when payroll grants expire, because airlines taking subsidized loans sign onto the Transportation Secretary requiring continued air service (at the Secretary’s discretion).
• The carriers themselves say demand won’t recover by April 2021, so workers face furlough again.

A ‘clean extension’ of the CARES Act doesn’t even preclude the shenanigans airlines engaged in, requiring workers to take unpaid leaves and reducing hours, in order to keep more of the payroll money for themselves. The Treasury Secretary knows all of this and has endorsed another $25 billion.

Secretary Mnuchin, then, has publicly supported another $25 billion because of this, because it’s mostly money that supports airline shareholders and creditors, and not even money the airlines need to survive.

And that brings up the strange incentive that Mnuchin now faces. He insisted on stock warrants when airlines took their first round of bailouts in the spring. He’s gotten additional warrants for subsidized loans. Now he succeeds when the taxpayers ‘make money’ off the deal he constructed.

Here are the warrants from April:

Airline	# of Warrants	Exercise Price
AMERICAN AIRLINES	13,703,876	$12.51
DELTA AIR LINES	6,563,753	$24.39
UNITED AIRLINES	4,627,141	$31.50
JETBLUE	2,639,226	$9.50
SOUTHWEST AIRLINES	2,598,724	$36.47
ALASKA AIRLINES	881,480	$31.61
SPIRIT AIRLINES	500,150	$14.08
HAWAIIAN AIRLINES	488,477	$11.82
SKYWEST AIRLINES	357,317	$28.38
ALLEGIANT AIR	25,890	$83.33
FRONTIER AIRLINES	13,016	$241.72
REPUBLIC AIRWAYS	7,662	$415.00

Taxpayers will gain when the share price of these airlines rise, because the government will sell its warrants at a profit (or convert to shares that will sell at a profit).  It will appear that bailouts were a ‘better deal’.

Pumping an additional $25 billion into airlines, most of which covers expenses they’d incur anyway even without a bailout, pumps up the value of airlines, their share prices, and makes Mnuchin look like a hero for the ‘investments he made on behalf of the taxpayer’ (which of course won’t net out the additional $25 billion injection).

When airlines gave the government a stake in their businesses, effectively partial nationalization, they created an incentive for the government to continue bailing them out to protect and grow that very stake.

In 1998 the four major tobacco companies entered into a settlement with 46 states that would pay out $206 billion over 25 years. This transformed states from tobacco company opponents into protectors to ensure their revenue stream. Even new tobacco companies that hadn’t engaged in deceptive behavior the settlement covered were required to pay in, protecting incumbents from competition. Once the government’s fortunes are tied to that of a business, expect both protectionism and cronyism.