By James Kwak
The airline industry is trying to hold up the federal government for $29 billion in grants and another $29 billion in loans. They threaten that if they do not get the grants they will lay off employees, which if they dont get the loans they will use their staying money on dividends and stock buybacks.
Photo by Júlia Orige from Pixabay
At current course and speed, the airline companies will go bankrupt. It represents the peak of the concept of shareholder commercialism: screw the workers, screw the financial institutions, simply take the money and run.
More importantly: the federal government needs to not provide the airline company industry a single penny either in grant help or in sweetheart loans. I comprehend the economic challenges here. Thousands of employees are at threat of losing their jobs and not being to spend for food or rent in the middle of the best crisis of our lifetimes. To the level we want to assist them, the top concern is to provide money straight to them.
It is true that there is some worth in protecting the airlines as feasible entities rather than letting them go insolvent. If there were other business able to take control of their properties and labor forces and put them to efficient usage, then by all methods they could simply stop working, however that is probably not the case today.
If the federal government does pick to save the airlines themselves– and not just their workers– it must do so by purchasing equity in the companies, at costs that do not currently reflect the possibility of a bailout. (Most of the value that airline stocks have today is probably based upon expectations that they can get a bargain out of the crony-capitalist Trump administration.) That way, when the economy one day recuperates and individuals start flying once again, the U.S. government– and for this reason its taxpayers– will benefit, not individuals who presently occur to own stock in airlines. And the government should not dilute its ownership by discovering imaginative methods to funnel cash to the industry on favorable terms, as it finished with the megabanks in the monetary crisis (most significantly the third Citigroup bailout). Airline executives and their investors have no practical option; without a government bailout, their more than likely future is insolvency and being purchased by some personal equity firm for a portion of the face value of their financial obligation (paid to financial institutions, not investors).
In either case, the concept is the very same: not one cent of totally free money
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: the federal government ought to not provide the airline company market a single penny either in grant help or in sweetheart loans. If the federal government does choose to save the airline companies themselves– and not simply their workers– it needs to do so by buying equity in the business, at rates that do not already show the possibility of a bailout. That way, when the economy someday recovers and individuals begin flying once again, the U.S. federal government– and thus its taxpayers– will benefit, not the people who currently occur to own stock in airline companies. Airline company executives and their investors have no viable alternative; without a government bailout, their most likely future is insolvency and being purchased by some private equity company for a fraction of the face value of their financial obligation (paid to creditors, not investors).
