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The coronavirus pandemic has affected nearly every sector of the economy, and one of the most severely hit has been airlines. Strict travel restrictions and the public’s fear of traveling have caused demand for tickets to plummet dramatically.
In mid-March, 10 U.S. airlines sent Congress a joint letter asking for a $50 billion bailout to keep the industry afloat and avoid mass layoffs. Congress appears poised to follow through on the request. Bills under consideration in both chambers would provide more than $40 billion in relief to airlines, though Democrats in the House have included strict rules on what the companies can do with those funds.
This would be the second time the government has bailed out airlines in the past 20 years. The industry received $15 billion in aid to counteract losses after the Sept. 11 terrorist attacks in 2001.
Why there’s debate
Proponents of a bailout argue that airlines are far too important to the economy to allow them to collapse. Not only are 700,000 industry jobs at risk, but the businesses of countless companies would grind to a halt if air travel became unreliable. Airlines are uniquely vulnerable, some argue, because of extremely high day-to-day costs, even when they’re operating at low capacity and can’t count on a surge of new business to make up for revenue losses after the outbreak ends.
Opponents counter that the airlines don’t deserve a bailout because of how badly they’ve been managed. The country’s biggest airlines raked in record profits over the past decade thanks to consolidation in the industry and additional income streams like baggage fees. Rather than save that money for a possible downturn, the airlines spent a reported 96 percent of their profits on stock buybacks to increase share price and boost executive compensation. Some economists see traditional bankruptcy as the best path for the airlines.
Others advocate a middle ground in which Congress can use the leverage of a bailout to mandate changes in the way airlines do business, including banning stock buybacks, limiting executive pay, reducing carbon emissions and getting rid of exorbitant fees.
On Wednesday, Democrats and Republicans in the Senate reached a deal on a $2 trillion stimulus bill that reportedly includes $50 billion for the airlines. House Speaker Nancy Pelosi said the House could vote on the bill by Friday.
The public may not like it, but an airline bailout is necessary
“Nobody wants to bail out executives and shareholders who spent years lining their pockets as hundreds of thousands of owner-operated restaurants go out of business. But letting the planes go down would put nearly a million people out of work and deprive the country of nearly all its long-distance travel infrastructure.” — Henry Grabar, Slate
Workers would suffer most if we try to punish the airlines by denying them a bailout
“Yes, it's unfortunate that companies and CEOs that made bad, dumb and greedy decisions now need federal aid. But what's the alternative? Punish the rich at the expense of everyone else?” — Paul R. La Monica, CNN
A bailout should require a promise to substantially change business practices
“We cannot permit American and other airlines to use federal assistance, whether labeled a bailout or not, to weather the coronavirus crisis and then return to business as usual. Before providing any loan relief, tax breaks or cash transfers, we must demand that the airlines change how they treat their customers and employees and make basic changes in industry ownership structure.” — Tim Wu, New York Times
The airlines should be forced to reduce emissions
“Since aviation produces a lot of climate pollution, assistance for the airlines should include requirements that they cut their emissions.” — Annie Petsonk, The Hill
The public interest, not the airlines’ bottom line, should be the focus of the bailout
“There’s no doubt that coronavirus poses an exceptional challenge to American businesses, and it’s entirely appropriate for the government to backstop employers of all sizes and sectors as it also backstops American families and workers. But if taxpayers are asked to go above and beyond for any particular industry, those industries will need to go above and beyond for the public interest.” — Editorial, Boston Globe
Restrictions would hamper the airlines long term, ultimately hurting workers
“Imposing minimum-wage mandates, restrictions on executive compensation, and other directives that restrain business decisions as conditions for the receipt of bailout funds will only increase the likelihood that airlines will encounter financial troubles in the future.” — Veronique De Rugy, National Review
The airlines shouldn’t be rewarded for reckless business practices
“The government must set a precedent for corporations that spend the boom years enriching themselves and their shareholders only to crawl to Capitol Hill hat in hand. Rather than filling up the hat, they ought to get a kick in the butt.” — Aaron Gordon, Vice
There is no risk of air travel suddenly going away
“There is no danger that the airlines are about to disappear, leaving the flying public grounded after the coronavirus crisis passes. Without a bailout, the air carriers would renegotiate their terms of credit with their lenders outside court, or they would file for Chapter 11 bankruptcy protection. Either way, they would keep flying.” — Richard Squire, Washington Post
Allowing the airlines to file for bankruptcy is a better plan
“The rational thing for the government to do would be to let the weaker airlines go out of business as the stronger but still viable carriers continue flying under Chapter 11 bankruptcy — as they have done in previous airline downturns.” — Jack Shafer, Politico
The airlines can get favorable loans from the private sector
“The airlines are big enough to get their own loans from banks at rock-bottom interest rates. Their planes and landing slots are more than adequate collateral.” — Robert Reich, Guardian
The airlines wasted a decade of good fortune on greed
“Despite a history of rough patches during unforeseen events … large U.S. airline companies spent most of their free cash flow over the past 10 years on share buybacks, propping up their quarterly earnings-per-share results.” — Philip van Doorn, MarketWatch
Too many businesses are going to need help to rescue everyone
“The vast majority of the economy is going to be affected by the current crisis. Why should sweetheart deals go out to the companies affected first, the companies that have most imperiled themselves by over-borrowing and spending?” — John M. Griffin and James M. Griffin, USA Today
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Photo illustration: Yahoo News; photo: Lindsey Wasson/Reuters