Airlines Plead For $50B Bailout, But Do They Deserve It?

As U.S. airlines ask for nearly $60 billion in government help to deal with society-wide cocooning they fear could threaten the carriers' existence, critics say the companies have squandered the fruits of a high-flying decade and any bailout should come with conditions.

As travel comes to a near standstill amid the effort to slow the spread of the coronavirus, U.S. carriers have pleaded for help from Washington and the Trump administration is pushing Congress to provide it.

“We’re going to back the airlines 100%,” President Donald Trump said Monday.

"The current economic environment is simply not sustainable," trade group Airlines for America said. The industry is requesting direct assistance and loan guarantees of about $50 billion along with excise tax relief that could be worth another $10 billion or so.

See Also: Could Boeing Get Taken Over By The US Government?

The carriers also say the government needs to help the 750,000 people U.S. airlines employ to bolster the entire economy. And having healthy airlines also allow other businesses to function normally, says White House economic advisor Larry Kudlow.

"Airlines are key channels in the economy, you’ve got to have them," Kudlow told reporters outside the White House this week.

The International Air Transport Association has estimated revenue losses for airlines worldwide could top $100 billion.

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Skepticism: Are Bailouts Deserved?

As soon as the airlines started asking for help, another chorus arose asking whether they deserve it - whether they've served the American public well when they were flush with business. Many say they didn't.

U.S. Sen. Richard Blumenthal, a Connecticut Democrat, wrote to Senate leaders asking that "enhanced consumer and labor protections" be included in any bailout.

"The prevalence of anti-consumer conduct in aviation is on the rise, as demonstrated by price gouging, involuntarily denied boarding, shrinking seats, baggage mishandling and more," Blumenthal wrote. "We cannot permit the airline industry to obtain federal assistance to weather the coronavirus and then return to these predatory business practices after the crisis."

Sept. 11 Bailout 'Massive Boondoggle'

After the Sept. 11, 2001 attacks brought travel to a near halt, Congress gave $15 billion in aid to the airlines. 

Blumenthal said after that bailout, the carriers "paid shareholders but not front-line workers."

Criticism of that bailout back then included that much of it went to airlines that went bankrupt anyway, and to companies that weren't truly part of the nation's passenger airline infrastructure. 

"It was a massive boondoggle," Republican Illinois Sen. Peter Fitzgerald said a few months after the 2001 bailout.

See Also: The Already Troubled Airline Industry Pleads For State Relief – Are US Airlines Safe?

Airline Bailout Contingent On Concessions

Blumenthal wants the Senate to require the airlines make concessions as part of any bailout package that would include a ban on subsequent stock buy backs, and prohibitions on increased executive compensation and other spending that doesn't filter down to benefit the workforce.

Another criticism is that the airlines have spent most of their extra cash over the last decade on stock buybacks.

Bloomberg reported that the largest carriers have spent more than 95% of their combined free cash flow on buying back their own stock since 2010. American Airlines Group Inc AAL did this the most, spending 80% of its FCF on buybacks. Southwest Airlines Co LUV spent about 70%, Bloomberg reported.

In addition to spending more than $15 billion on stock buybacks to boost earnings per share, the airlines also borrowed heavily to finance fleet growth, noted Columbia University law professor Tim Wu in a New York Times op-ed this week urging Americans not to "feel sorry for the airlines."

U.S. airlines have said the current crisis again threatens their existence.

United Airlines Holdings Inc UAL, whose stock was down more than 30% on Wednesday, said this week its March revenue will come in about $1.5 billion below the same month a year ago. The airline also said it will cut its flights in half in April and May. Delta Airlines Inc. DAL and American have frozen hiring and even asked employees to take voluntary leave.

Posted In: GovernmentNewsBuybacksTravelTop StoriesGeneralairlinesCoronavirusCovid-19Donald TrumpMajor Airline IndustrySenator Richard Blumenthal
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