A year ago this week, Doug Parker, CEO of American Airlines, flew to Washington to launch an annual lobbying campaign for a series of tax-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 outstretched. The air hostess and pilot unions were also part of the lobbying work.
A year later, as the stock market rises to new heights, questions must be asked about the $ 50 billion allocations used to advance the airline industry. Was it worth it? And was it necessary?
The good news is that the bailout probably saved up to 75,000 jobs, most of which were paid in full. And the money has also prevented the airlines from filing bankruptcy and being able to transport passengers across the country in order to start economic growth as the health crisis subsides.
The bad news is that taxpayers are also likely to have overpaid: the original $ 25 billion allocation in April meant that each of the 75,000 savings opportunities cost more than $ 300,000. And with each passing round of bailout money, the price grew.
The truth is that shareholders of the airlines were the biggest beneficiaries. This includes airline executives, many of whom have been paid for in stock for many years and would lose millions of dollars if their investments were wiped out. Airline chiefs compensated ten million millions a year before the pandemic, in part by increasing their companies’ share prices by regularly buying back tens of millions of shares. This means that less money has to be set aside for a rainy day – or in this case a pandemic.
But here we are: shares of United traded below $ 20 in May; today they are higher than $ 60. The patterns are the same for the other major carriers.
Airline shares – which have been lifted by taxpayers – are nearly 200 percent higher than their pandemic trough and have almost recovered their losses.
It is fair to say that we have socialized the losses of the airline industry and largely privatized the profits.
No other industry affected by the pandemic has received more from the government. There was no special program for hotels or restaurants or travel agencies. Companies in those industries had to set up for the Paycheck Small Business Protection Program 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 have been. The rescue services of the airline were not just a job protection program as advertised. If you are not convinced, here is the following: United invested $ 20 million last month in an electric helicopter business published by a special procurement company, or SPAC. Does this sound like a company that is in such a serious situation that it needs taxpayer assistance? It received a third rescue payment after making the investment.
As the stock market soars, it’s worth considering whether the airlines need tax money’s money at all. It seems like private investors are willing to throw money at everything these days, from celebrity-backed businesses with no checks, no profits to small video retailers, Bitcoin and digital art. Why not airlines?
Even during the depths of the pandemic, in April last year, Carnival Cruise Line managed to raise $ 4 billion in debt from private investors, just as the airlines were still negotiating their first bailout agreement with the government. That said, Carnival had to pay dearly for the money, with an interest rate of about 12 percent.
Questions about the new stimulus package
The stimulus payments would be $ 1400 for most recipients. Those who are eligible also receive an identical payment for each of their children. To qualify for the full amount of $ 1400, a single person needs an adjusted gross income of $ 75,000 or less. For household heads, the adjusted gross income should be $ 112,500 or less, and for married couples filing jointly, it should be $ 150,000 or less. To be eligible for a payment, a person must have a social security number. Read more.
Buying insurance through the government program, known as COBRA, will temporarily become much cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, usually allows someone who loses a job to buy coverage through the former employer. But it is expensive: under normal circumstances, a person has to pay at least 102 percent of the premium cost. Under the relief bill, the government would pay the entire COBRA premium from 1 April to 30 September. A person who qualified for a new, employer health insurance somewhere else before September 30 will lose the free coverage. And someone who voluntarily left a job would also not be eligible. Read more
This credit, which helps working families to reimburse childcare costs for children under 13 and other dependents, will be significantly extended for one year. More people would be eligible, and many recipients would get a bigger break. The account will also make the credit fully repayable, which means you can collect the money as a refund, even if your tax account is zero. “It will be useful for people at the bottom” of the income scale, said Mark Luscombe, chief federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.
There is a big one for people who already have debt. You will not have to pay income tax on waiver if you qualify for waiver or cancellation – for example, if you were in the required number of years in an income-driven repayment plan, if you cheated on school or Congress or the president owes $ 10,000 in debt numbers of people away. This would be the case for debts forgiven between January 1, 2021 and the end of 2025. Read more.
The bill provides billions of dollars in rent and assistance assistance to people who are struggling and in danger of being evicted from their homes. About $ 27 billion would go to first aid. The vast majority of them will supplement the so-called Coronavirus Aid Fund, created by the CARES Act and distributed by state, local and tribal governments, according to the National Housing Coalition. This is in addition to the $ 25 billion aid offered by the aid package passed in December. To receive financial assistance – which can be used for rent, utilities and other housing expenses – households must meet various conditions. Household income cannot exceed 80 percent of the area’s median income, at least one household member must be at risk of homelessness or housing, and individuals must be eligible for unemployment benefits or if they have experienced financial problems (directly or indirectly) pandemic. According to the National Coalition for Low Housing, assistance can be provided for up to 18 months. Families with lower incomes who are unemployed for three months or longer will be given preference for assistance. Read more.
Airline chiefs and union bosses convinced Congress that the industry was different – and more indispensable. They argue that if airlines were to go bankrupt, there would be no planes ready to revive the economy. They argued that pilots could not be fired and that they could be re-employed quickly as they had to fly regularly or practice simulators to be certified to fly.
Would airlines have stopped flying into bankruptcy? Nope. In previous airline bankruptcies – and there have been dozens – the companies have continued to operate. The government could have provided financing according to the scenario, similar to the way it did when it rescued General Motors in 2009, and took a large shareholding in the company so that taxpayers could share in the upside when it recovered.
In return for the taxpayers’ money, the airlines agreed to a number of conditions, including the cessation of share buybacks, the reduction of executive salaries and the agreement to issue warrants to the government. But the warrants are small. In the case of American Airlines, the company will issue warrants worth about $ 230 million today – a small fraction of the $ 4 billion that taxpayers bequeathed to shareholders in the first round of their bailout.
Of course, we would never know what would have happened to the industry if it had to raise money on its own.
“Congress has saved thousands of airline jobs, preserved the livelihoods of our hard-working team members and helped put the industry at a central role in the country’s recovery to Covid-19,” he said. Parker and a top lieutenant at American Airlines said. in a statement after the latest round of rescue books last week. “Legislators from both parties support legislation that recognizes the commitment of professional airline personnel and the importance of the essential work they do.”
After the banking crisis led to a bailout in 2008, accusations began when companies like Goldman Sachs had a banner year in the aftermath – and bankers paid record bonuses.
Will the same happen with the airlines? According to their lifeline, the remuneration of the general managers this year and last year is limited to about half the amount they received before the pandemic.
Delta has already started issuing special payments to other drivers. It says it is to partially compensate them for extra hours worked during the pandemic. “The payment of special bonuses to management while the airline is still burning cash is premature and inappropriate,” Chris Riggins, a spokesman for the Air Line Pilots Association, said in a statement this month.
The worst for the airline industry may be over, but the debate over the appropriateness of the pandemic rescue operations is just getting underway.