A year ago this week, Doug Parker, the chief executive of American Airlines, flew to Washington to begin what became a yearlong lobbying campaign for a series of taxpayer-funded bailouts during the pandemic.
He wasn’t 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 their hands extended. The flight attendant and pilot unions were also part of the lobbying.
A year later, as the stock market cruises to new heights, questions should be asked about the $50 billion in grants that were used to prop up the airline industry. Was it worth it? And was it necessary?
The good news is that the rescue money likely saved as many as 75,000 jobs, most remaining at full pay. And that money also kept the airlines from filing for bankruptcy, and in a position to ferry passengers all over the country to jump start economic growth as the health crisis subsides.
throw money at everything these days, from celebrity-backed blank-check companies with no profits to troubled video game 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 rescue deal with the government. That said, Carnival had to pay dearly for the money, with an interest rate of around 12 percent.
Frequently Asked Questions About the New Stimulus Package
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 below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. 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 would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read more
This credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.
There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.
The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.
Airline chiefs and labor union bosses convinced Congress that the industry was different — and more indispensable. They made the case that if airlines were to fall into bankruptcy, there would be no planes ready to help revive the economy when the time came. They argued that pilots couldn’t be laid off and quickly rehired, since they need to be in flight regularly or training on simulators to be certified to fly.
Would airlines have stopped flying in bankruptcy? Nope. In previous airline bankruptcies — and there have been dozens — the companies kept operating. The government could have provided financing under that scenario, similar to the way it did when it rescued General Motors in 2009, taking a major equity stake in the company so that taxpayers could share in the upside when it recovered.
the company will issue warrants that are worth about $230 million today — a small fraction of the $4 billion that the taxpayers bequeathed the carrier’s shareholders in the first round of bailouts.
Of course, we’ll never know what would have happened to the industry had it been forced to raise money on its own.
“Congress has saved thousands of airline jobs, preserved the livelihoods of our hard-working team members and helped position the industry to play a central role in the nation’s recovery from Covid-19,” Mr. Parker and a top lieutenant at American Airlines said in a statement after the latest round of bailouts last week. “Lawmakers from both parties have backed legislation that recognizes the dedication of airline professionals and the importance of the essential work they do.”
After the banking crisis of 2008 led to bailouts, the recriminations began when firms like Goldman Sachs had a banner year in the aftermath — and paid bankers record bonuses.
Will the same thing happen to the airlines? Under the terms of their bailouts, the chief executives’ compensation this year and last was capped at about half what they received before the pandemic.
Delta has already begun to issue special payments to some other managers. It says this is to compensate them in part 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,” said Chris Riggins, a spokesman for the Air Line Pilots Association, in a statement this month.
The worst for the airline industry may be over, but the debate about the appropriateness of the pandemic bailouts is just getting started.