Last week American Airlines mortgaged the AAdvantage program, using it as collateral for a government-subsidized $5.5 billion loan that can grow to $7.5 billion because there’s leftover CARES Act money – since Delta Air Lines and Southwest are declining to take the low interest loans.
Accepting the money requires offering warrants to purchase stock in the company to the government (partial nationalization), and it bans buying back stock or paying dividends until a year after funds are repaid and limits on executive compensation.
Six more airlines though have closed on loans under these conditions: United Airlines, Alaska Airlines, Frontier Airlines, JetBlue, Hawaiian Airlines, and SkyWest. Treasury didn’t immediately release the amounts borrowed by each airline, or the collateral used.
The subsidized loans were provided for in the CARES Act, as a companion to payroll support provided in the spring that requires not furloughing workers or dropping service to destinations flown (without approval by DOT) through today.
Democrats And Republicans Both Want Another Bailout
There’s bipartisan support for another airline bailout under the guise of preventing worker furloughs. Treasury Secretary Mnuchin called for it yesterday, matching what’s in the plan from House Deemocrats. So the gap here is in overall spending, no disagreement about another airline bailout.
The House of Representatives revealed their revised $2.2 trillion ‘HEROES Act’ earlier in the week and the number two bullet point to promote it is that it would offer a ‘clean extension’ of airline payroll support. That would mean $25 billion more for U.S. airlines.
- At this point only about 35,000 workers face furlough in October
- That’s $714,286 per worker, an annualized rate of $1.43 million per job (and many of these aren’t especially high paying jobs, over 40% of furloughs will be flight attendants).
- Disney will lay off nearly as many people as the entire airline industry. There’s no money left to support them. Since United’s Scott Kirby says airlines when recover when people are traveling to Disney theme parks again, perhaps they’re the crucial workers that are needed to support airline recovery?
Since protecting worker jobs, pikcing up the full tab of those who would be furloughed in October, would cost less than 10% of the amount proposed by all sides the remaining 90% is a straight subsidy – it’s money for payroll, but money that the airlines will be spending anyway on payroll, covering the workers who would still be employed.
Airlines Threaten Small Community Air Service, But They’re Colluding With DOT To Extort Taxpayers
U.S. airlines have argued that without more payroll support, which requires them to continue serving all of their destinations in some manner, small cities will lose air service. American announced 15 cities they would drop, although they backed off four of those. In the case of Stillwater, OKlahoma, the airport says they traded political support for bailouts in exchange for continued air service.
However the Department of Transportation has the authority under the CARES Act to require any airline taking subsidized loans to continue air service through March 2022. There are now 7 airlines under this umbrella. Any loss of air service is strictly because the U.S. Department of Transportation has chosen not to use this provision, and allow airlines to threaten small cities as a bargaining chit to leverage political support for an additional bailout.
It’s a bailout. But I think it’s important to note that most of the airline workers who have taken unpaid leaves are continuing to receive health insurance and other benefits, which obviously has a significant cost. And many of the leaves in the industry are partially-paid and include health insurance. American and United for example have approved thousands of partially paid leaves which prevented thousands of furloughs. CARES Act funding and any potential extension or similar legislation is meant to partially cover payroll costs for the carriers, including all those benefitted and partially paid leaves, and to allow the carriers to continue to service locations they would discontinue otherwise. The funding isn’t just to cover the announced Oct 1 furloughs -a number which will continue to grow. It’s to prevent those direct furloughs and furloughs in related industries, partially cover current payroll, and allow the carriers to continue service. It’s too simple an analysis to just divide the cost of the bill by the number of announced furloughs in the industry without taking into account the further ramifications of those furloughs.
“But I think it’s important to note that most of the airline workers who have taken unpaid leaves are continuing to receive health insurance and other benefits, which obviously has a significant cost.”
1. Those are expenses the airlines will incur anyway, whether or not there’s another bailout.
2. Airlines reduce their overall payroll expenses through these leaves, and early outs mean a relatively more junior workforce that’s less expensive (the cost of each flight goes down).
These furlough mitigation measures were taken in the airline’s own self-interest, there’s no reason why taxpayers should pick up that cost. Doing so provides no additional benefit.
“allow the carriers to continue to service locations they would discontinue otherwise.”
A condition of accepting subsidized loans is that they can be required to continue service. DOT may not exercise that, but airlines have already agreed to it.
“it’s to prevent those direct furloughs and furloughs in related industries” no, stopping furloughs doesn’t mean more flying, more catering, etc (which would prevent furloughs in related industries) that only happens when travel demand returns. There is SEPARATELY money to prevent furloughs in related industries in the legislation. That’s entirely a separate matter from this $25 billion.
Another insane corporate welfare handout. If airline employees are to be made wards of the state, let’s just put them on the welfare rolls and be honest about it. To filter this welfare money through airlines is just a way to avoid the reality of the arrangement, while adding massive transaction costs and creating systemic moral hazard by shifting risks from shareholders to taxpayers. America would be much better off if these airlines declared bankruptcy, their shareholder equity wiped out, and their assets restructured, rather than keeping these parasitic zombie airlines alive to suck taxpayers dry.