Last week, executives of the airline industry asked the federal government for a $58 billion bailout. With the spread of coronavirus locking down much of the world, people aren’t traveling, flights are grounded, and airlines aren’t making any money. They’re now asking for billions of dollars to keep their fleets maintained and their workers employed, arguing that they need the help to remain financially stable.
Since airlines are a critical part of our national infrastructure, the people (acting through their elected representatives) are probably going to find it necessary to give the owners of the airlines a bailout.
But that is fundamentally unfair. Airlines, like all businesses, have good years and bad years. Most business people know that. A few, however, know that they are too big or too important to fail, so they decide that the most profitable thing to do is to take all of the profits in the good years, and let the people take the losses in the bad years. For some businesses (like banks, insurance companies, electrical utilities) that risk is fairly obvious, and we have laws and regulations to mitigate that behavior. But not for airlines.
Since the airline owners received a grant from the people of the United States for billions of dollars after the 9/11 terrorist attacks in 2001, the owners have withdrawn from their companies, through stock buybacks, around 96% of the cash that those companies generated, totalling tens of billions of dollars. This made them all very, very rich. But now, with a bad year suddenly upon them, they are shocked to realize that there is no extra cash inside of their companies to keep them afloat.
In hindsight, continuously draining all the money earned by their airlines into their own pockets was obviously a short-sighted plan. But even at the time, various groups, including a number of employee unions recommended that the airlines build their cash reserves in anticipation of a downturn rather than spend all of their money on stock buybacks. They were ignored.
Why were they ignored? Because airline executives assumed that, given their industry’s critical role in our economy, they would be bailed out by the government in case of any downturn or disaster. They’re probably right, but we shouldn’t reward their recklessness.
The government might need to bail out the airlines for the sake of their employees and the economy as a whole, but that doesn’t mean that there should be no consequences for a decade of corporate irresponsibility. These bailouts need to come with dozens of strings attached, not as blank checks.
At the very least, the utter lowest bar, absolutely none of the money in the bailout fund can go to stock holders or executive bonuses or raises. It all must either be spent on ongoing maintenance or on employee salaries. The bailout should be entirely focused on funding the essentials that are required to keep the airline going, not on continuing a pattern of corporate greed.
The government should also use this moment of leverage to make sure that the people get their fair share when the crisis is over. If the tax payers are on the hook in the bad days, they must get their complete share of the profits in the good times.
The US government needs to set an example here. Too many sectors of our economy are predicated on the same gamble taken by airline executives, that the government is going to come along and bail out any industry that is too big to fail even if its failure is of its own doing. It’s a model built on public risk and private reward. When things go well, executives and shareholders profit. But when things go badly, the American people pay to fix things.
If we’re going to stop this same kind of reckless, short-term profit seeking in critical industries in America, the airline bailout needs to be shaped in a way that leaves executives in other industries scared. They cannot continue to rely on the American people to subsidize their short-term greedy decisions.