Airlines all over the world are asking for government aid in the wake of passenger traffic collapsing by some 90 percent.
In America, the COVID-19 virus bill provides $50 billion for air carriers, half of it in loans. But the strings attached include the right of the Treasury Secretary to take an “equity interest” in airlines getting loans. In other words, the U.S. government could become a partial owner of the airlines.
Supporters of the idea say the taxpayers deserve something for the risk they take in floating the loans, and that’s understandable. But the dangers of having the airlines sharing ownership with Washington outweigh any possible return on investment. If you take all the valuations of the major U.S. airlines together, they don’t top $40 billion. So it’s possible Uncle Sam could quickly become the biggest shareholder in each of them.
With huge shareholder stakes comes government meddling. After the 2008 financial crisis, government bureaucrats extended loans to several companies such as General Motors. They then often proceeded to dictate management and even advertising decisions.
Gary Leff, whose View From The Wing is one of the most popular blogs covering the airline industry, told me that allowing the government to take an equity share in airlines will just make it more difficult for them to attract private investors going forward. “We don’t want airlines responsible to political interests rather than consumer interests,” he told me.
Leff says there’s also no evidence that airlines can’t raise money in equity markets on their own, as Southwest Airlines did with a $2.3 billion flotation last week. He notes that if a truly struggling airline needs cash, it could sell off its lucrative frequent flyer program, as Air Canada did several years ago. It could also raise money by selling some of its valuable gate slots at overcrowded airports.
“Even if an airline has to go to bankruptcy, that poses no systemic risk to the economy,” he says. “All of the major carriers have in the past kept flying through bankruptcy at one time or another.”
But if an airline does indeed feel it has to take a government loan, we shouldn’t allow Washington to entangle itself too much in its affairs. The airline bailout law apparently would allow the government to vote any shares it would get in exchange for the grants it makes.
That could put the government in the position of being able to exercise control over an airline’s business decisions. The bailout law already demands airlines getting federal money to continue to fly to all airports “served by that carrier before March 1, 2020.” Senators Elizabeth Warren and Bernie Sanders have demanded that airlines institute “consumer friendly” policies at a time when several can’t make payroll. House speaker Nancy Pelosi was at one point demanding that every airliner provide passengers a readout on their plane’s greenhouse emissions, tailored for “each aircraft and the flight route.” Who knows what ideas a Treasury secretary serving under a President Joe Biden would cook up.
Overseas, governments are already flexing their muscles and leaning on carriers to alter their policies in exchange for support. The German government is nationalizing the Condor vacation charter airline. With Lufthansa, the German national carrier, Berlin is asking the European Commission to allow Lufthansa to break existing rules and issue vouchers rather than cash refunds for flight cancellations. That’s an anti-consumer move if there ever was one.
It’s true the United States has subsidized airlines in the past. But unlike countries such as China, Russia, and Venezuela, it has never taken ownership stakes in them. If we are to come out of this virus crisis with our free economy intact, we can’t afford to start down the road of letting the government be a backseat partner for our airline industry.