Were the Airline Bailouts Really Needed?

A year ago this week, American Airlines executive director Doug Parker flew to Washington to launch a year-long lobbying campaign for a number of taxpayer-funded bailouts during the pandemic.

He wasn’t alone. The campaign also included executives 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 attendant and pilot unions were also part of the lobbying work.

A year later, as the stock market reached new heights, questions were to be asked about the $ 50 billion grants that were used to prop up the aviation industry. Was it worth it? And was it necessary?

The good news is that the bailout has likely saved up to 75,000 jobs, most of which will remain with full pay. And that money also kept airlines from filing for bankruptcy and was able to carry passengers across the country to fuel economic growth as the health crisis subsides.

The bad news is that it’s likely that taxpayers have massively overpaid too: 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 every further round of rescue money, this price has risen.

The truth is that airline shareholders have been the biggest beneficiaries. This includes airline executives, many of whom have been paid for years in inventory and would lose millions of dollars if their stocks were wiped out. The airline bosses raised tens of millions a year in compensation before the pandemic, including by increasing the share prices of their companies by regularly buying back tens of billions of shares. That meant setting aside less money for a rainy day – or, in this case, a pandemic.

But here we are: United shares traded below $ 20 in May; Today they are over $ 60. The patterns are similar for the other main beams.

The airline stocks that have been raised by taxpayers are up nearly 200 percent since their pandemic, and have almost made up for their losses.

It is fair to say that we have socialized the losses in the aviation industry and largely privatized the profits.

No other industry hit by the pandemic received more from the government. There was no special program for hotels, restaurants or travel agencies. Companies in these industries had to queue and pray for the small business-focused program to protect paychecks. The largest loan the program could make was $ 10 million.

The question is not whether the airline’s employees should have been helped, but whether it should have helped the airline’s shareholders. The airline’s bailouts were not just a job protection program, as advertised. In case you’re not convinced, here’s what: United last month invested $ 20 million in an electric helicopter company that went public through a special purpose vehicle (SPAC). Does this sound like a company in such dire straits that it needs a taxpayer-funded bailout? After the investment, it received a third rescue payment.

With the stock markets soaring, it’s worth considering whether airlines need taxpayers’ money at all. Private investors these days seem ready to throw money into anything from prominent blank check companies with no profit to troubled video game dealers, bitcoin, and digital art. Why not airlines?

Even in the depths of the pandemic, Carnival Cruise Line managed to raise $ 4 billion in debt from private investors last April when airlines were negotiating their first bailout deal with the government. Even so, Carnival had to pay dearly for the money with an interest rate of around 12 percent.

Frequently asked questions about the new stimulus package

How high are the business stimulus payments in the bill and who is entitled?

The 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 the full $ 1,400, a single person would need an adjusted gross income of $ 75,000 or less. For householders, the adjusted gross income should be $ 112,500 or less, and for married couples filing together, that number should be $ 150,000 or less. To be eligible for a payment, an individual must have a social security number. Continue reading.

What Would the Relief Bill do for Health Insurance?

Buying insurance through the government program known as COBRA would temporarily become much cheaper. Under the Consolidated Omnibus Budget Reconciliation Act, COBRA generally lets someone who loses a job purchase coverage through their previous employer. But it’s expensive: under normal circumstances, a person must pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the full COBRA premium from April 1 to September 30. An individual who qualified for new employer-based health insurance elsewhere before September 30th would lose their eligibility for free coverage. And someone who left a job voluntarily would also be ineligible. Continue reading

What would the child and dependent care tax credit bill change?

This loan, which helps working families offset the cost of looking after children under the age of 13 and other dependents, would be significantly extended for a single year. More people would be eligible and many recipients would get a longer break. The bill would also fully refund the balance, which means you could collect the money as a refund even if your tax bill were zero. “This will be helpful for people on the lower end of the income spectrum,” said Mark Luscombe, chief federal tax analyst at Wolters Kluwer Tax & Accounting. Continue reading.

What changes to the student loan are included in the invoice?

There would be a big one for people who are already in debt. You wouldn’t have to pay income tax on debt relief if you qualified for loan origination or cancellation – for example, if you’ve been on an income-based repayment plan for the required number of years, if your school cheated on you, or if Congress or the President wipe out $ 10,000 debt gone for a large number of people. This would be the case for debts canceled between January 1, 2021 and the end of 2025. Read more.

What would the bill do to help people with housing?

The bill would provide billions of dollars in rental and utility benefits to people who are struggling and at risk of being evicted from their homes. About $ 27 billion would be used for emergency rentals. The vast majority of these would replenish what is known as the Coronavirus Relief Fund, which is created by the CARES Act and distributed through state, local, and tribal governments, according to the National Low Income Housing Coalition. This is on top of the $ 25 billion provided by the aid package passed in December. In order to receive financial support that could be used for rent, utilities and other housing costs, households would have to meet various conditions. Household income cannot exceed 80 percent of area median income, at least one household member must be at risk of homelessness or residential instability, and individuals would be at risk due to the pandemic. According to the National Low Income Housing Coalition, assistance could be granted for up to 18 months. Lower-income families who have been unemployed for three months or more would be given priority for support. Continue reading.

Airline bosses and union bosses convinced the congress that the industry was different and more indispensable. They argued that if the airlines went bankrupt, there would be no planes willing to revive the economy in due course. They argued that pilots could not be fired and reinstated quickly because they must be regularly in flight or train on simulators in order to be certified to fly.

Would the airlines have stopped going bankrupt? No Previous airline bankruptcies – and there were dozens – the companies continued to operate. The government could have provided funding in this scenario, much like it did when it bailed out General Motors in 2009, by taking a larger stake in the company so that taxpayers could participate in the uptrend as it recovered.

The airlines agreed to a number of terms in exchange for the taxpayers ’money, including stopping share buybacks, reducing executive compensation and issuing stock warrants to the government. But the warrants are tiny. In the case of American Airlines, the company will issue around $ 230 million worth of warrants today – a tiny fraction of the $ 4 billion taxpayers left to the airline’s shareholders in the first round of bailouts.

Of course, we will never know what would have happened to the industry if it had been forced to raise money on its own.

“Congress saved thousands of airline jobs, secured the livelihoods of our hardworking team members, and helped the industry play a pivotal role in the country’s recovery from Covid-19,” said Parker and a lieutenant at American Airlines in one Declaration after the last round of rescue last week. “Legislators from both parties have endorsed laws that recognize the dedication of airline professionals and the importance of the essential work they do.”

After the 2008 banking crisis led to bailouts, the allegations began when companies like Goldman Sachs had a banner year that followed – and bankers paid record premiums.

Will the same thing happen with the airlines? As part of their bailouts, executive compensation this year and last was capped at around half of what they had received before the pandemic.

Delta has already started making bonus payments to some other managers. This is said to be in part to compensate them for extra hours worked during the pandemic. “Paying bonuses to management while the airline is still burning cash is premature and inappropriate,” Air Line Pilots Association spokesman Chris Riggins said in a statement earlier this month.

The worst for the aviation industry may be over, but the debate over the adequacy of pandemic bailouts is just beginning.

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