A year ago, Doug Parker, the chief executive of American Airlines, flew to Washington to start what has become a one-year lobbying campaign for a series of taxpayer-funded bailouts during the pandemic.
He was not alone. The campaign also included leaders from Alaska Airlines, Allegiant Air, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines and Southwest Airlines – all with outstretched hands. The flight attendants and pilots unions were also part of the lobby.
A year later, as the stock market reaches new heights, questions should be asked about the $ 50 billion in donations that were used to support the civil aviation sector. Worth it? And was it necessary?
The good news is that the ransom money probably saved up to 75,000 jobs, most of which were paid in full. And that money also prevented airlines from going bankrupt and being able to transport passengers across the country to boost economic growth as the health crisis eased.
The bad news is that taxpayers are also likely to have paid dearly: the original $ 25 billion grant in April meant that each of the 75,000 jobs saved cost the equivalent of more than $ 300,000. And with each additional round of bailout money, that price has increased.
The truth is that airline shareholders have been the biggest beneficiaries. This includes airline executives, many of whom have been paid in shares for years and would lose millions of dollars if their assets were eliminated. Airline heads raised tens of millions a year in compensation before the pandemic, in part by raising their companies’ share prices by regularly repurchasing tens of billions in shares. That meant setting aside less money for a rainy day – or, in this case, a pandemic.
But here we are: United’s shares traded below $ 20 in May; today they are over $ 60. The standards are similar for other major carriers.
The shares of the airlines – increased by taxpayers – increased by almost 200% with the fall of the pandemic and almost recovered their losses.
It is fair to say that we have socialized the losses in the airline industry and, to a large extent, privatized the gains.
No other industry affected by the pandemic has received more from the government. There was no special program for hotels, restaurants or travel agencies. Companies in these sectors had to line up for the Paycheck Protection Program for small businesses and pray. The largest loan the program could make was $ 10 million.
The question is not whether airline employees should have been helped, but whether airline shareholders should. Airline bailouts were not simply a job protection program, as advertised. If you’re not convinced, here’s the thing: United invested $ 20 million in an electric helicopter company last month that went public through a special-purpose acquisition company, or SPAC. Does this sound like a company that is in such a difficult situation that it requires a taxpayer-financed bailout? He received a third ransom payment after making the investment.
With the stock market booming now, it is worth considering whether airlines really needed taxpayer money. Private investors seem to be willing to throw money at everything these days, from celebrity-backed, nonprofit blank check companies to troubled video game retailers, Bitcoin and digital art. Why not airlines?
Even during the height of the pandemic in April last year, Carnival Cruise Line managed to raise $ 4 billion in debt from private investors, just as airlines were still negotiating their first bailout deal with the government. That said, Carnival had to pay dearly for the money, with an interest rate of around 12%.
Frequently asked questions about the new stimulus package
Stimulus payments would be $ 1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for a total of $ 1,400, a single person would need an adjusted gross income of $ 75,000 or less. For heads of households, the adjusted gross income must be $ 112,500 or less, and for couples filing jointly, that number must be $ 150,000 or less. To be eligible for a payment, a person must have a Social Security number. See More information.
Buying insurance through the government program known as COBRA would temporarily be much cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally allows someone who loses a job to purchase coverage from the former employer. But it is expensive: under normal circumstances, a person may have to pay at least 102% of the cost of the premium. According to the relief bill, the government would pay the entire COBRA premium from April 1 to September 30. A person who qualifies for new employer-based health insurance elsewhere before September 30 would lose eligibility for free coverage. And someone who quit their job voluntarily would also not be eligible. Read More
This credit, which helps working families to offset the cost of caring for children under 13 and other dependents, would be significantly expanded over a single year. More people would be eligible and many recipients would have a greater chance. The invoice would also make the credit fully refundable, which means that you could charge the money as a refund even if your invoice was zero. “This will be useful for people at the bottom end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. See More information.
There would be a big problem for those who already have debts. You would not have to pay income tax on forgiven debts if you were eligible for loan forgiveness or cancellation – for example, if you have been on an income-based repayment plan for the required number of years, if your school has defrauded you or if O Congress or the president wipe $ 10,000 off the debt of a large number of people. This would be the case for debts forgiven between January 1, 2021 and the end of 2025. Read more.
The project would provide billions of dollars in rent and public service assistance to people who are struggling and at risk of being evicted from their homes. About $ 27 billion would go to emergency rental assistance. The vast majority would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed by state, local and tribal governments, according to the National Low Income Housing Coalition. That adds to the $ 25 billion in assistance provided by the aid package approved in December. In order to receive financial assistance – which could be used for rent, utilities and other housing expenses – families would have to meet several conditions. Family income cannot exceed 80 percent of the area’s average income, at least one family member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced difficulties (directly or indirectly) because of the pandemic. Assistance can be provided for up to 18 months, according to the National Low Income Housing Coalition. Low-income families who have been unemployed for three months or more would have priority for assistance. See More information.
Heads of airlines and heads of unions convinced Congress that the industry was different – and more indispensable. They argued that if airlines went bankrupt, there would be no planes ready to help revive the economy when the time came. They argued that pilots could not be dismissed and rehired quickly, as they need to be in flight regularly or train in simulators to be certified to fly.
Would the airlines have stopped flying in the event of bankruptcy? No. In the bankruptcies of previous airlines – and dozens have already occurred – the companies continued to operate. The government could have provided financing under this scenario, similar to the way it did when it bailed out General Motors in 2009, taking an important shareholding in the company so that taxpayers could share the positive side when it recovered.
Airlines, in exchange for taxpayer money, agreed to a number of conditions, including suspending share buybacks, reducing executive salaries and agreeing to issue share guarantees to the government. But the warrants are tiny. In the case of American Airlines, the company will issue guarantees worth about $ 230 million today – a small fraction of the $ 4 billion that taxpayers bequeathed to the carrier’s shareholders in the first round of redemptions.
Of course, we will never know what would have happened to the industry if it were forced to raise money on its own.
“Congress saved thousands of airline jobs, preserved the livelihoods of our working team members, and helped to position the industry to play a central role in the recovery of the country’s Covid-19,” said Parker and an important place- American Airlines lieutenant in a statement after the last rescue round last week. “Legislators on both sides supported legislation that recognizes the dedication of airline professionals and the importance of the essential work they do.”
After the 2008 banking crisis led to bailouts, recriminations started when companies like Goldman Sachs had an exceptional year as a result – and paid record bonuses to bankers.
Will the same happen with airlines? According to the terms of their bailouts, compensation for chief executives this year and last year was limited to about half of what they received before the pandemic.
Delta has already started issuing special payments to some other managers. He says this is to compensate them in part for the overtime worked during the pandemic. “Paying special bonuses to management while the airline is still spending money is premature and inappropriate,” said Chris Riggins, a spokesman for the Airline Pilots’ Association, in a statement this month.
The worst for the civil aviation industry may be over, but the debate over the adequacy of pandemic bailouts is only beginning.