America’s beleaguered passenger airlines are allocated roughly $50 billion in the coronavirus relief bill that passed last week. Loans represent half of the amount. The rest is grants to backfill wages and benefits, offered on the condition that the airlines won’t cut compensation or furlough anyone before Sept. 30.
The idea is simply to freeze the staff list for six months, at which point the pandemic might have receded and air travel recovered. In exchange, Congress has authorized the Treasury Secretary, at his sole discretion, to “receive warrants, options, preferred stock, debt securities, notes, or other financial instruments” that constitute “appropriate compensation to the Federal Government.” The law also empowers him to take “a warrant or equity interest” in airlines receiving loans.
The desire to get something for the taxpayer’s buck is understandable, but there’s a real risk here of a long-term nationalization. Look at the latest valuations of the biggest airlines: roughly $15.3 billion for Delta, $6.4 billion for United, and $4.6 billion for American. Leave out Southwest, which has fewer debts than its peers. Add about $8 billion combined for Alaska, JetBlue, Allegiant, Spirit and Hawaiian. Compare that with the federal government’s offer of $50 billion in loans and grants.
The point is that if the government takes equity, its stake might not be a sliver, especially if the employee subsidy isn’t discounted. At the end of 2019, American Airlines was paying about $1 billion a month in salaries, wages and benefits, according to its latest financial statement. With the number of flying passengers now down 90%, how long would the Treasury have to float an airline’s payroll before taxpayers became its majority owner?
The law doesn’t appear to restrict the government from voting the shares it might receive in exchange for these grants. Washington should have no role in directing the business of a private company, and Treasury Secretary Steven Mnuchin perhaps would agree. What if his successor turns out to be Treasury Secretary Elizabeth Warren?
Already the bureaucracy is being deployed to oversee routes for the airlines that take federal money. As they adapt to the age of social distancing, the Transportation Department is authorized to mandate continued flights, if they are deemed necessary “to ensure services to any point served by that carrier before March 1, 2020.” Congress specifies that the calculation “shall take into consideration the air transportation needs of small and remote communities.” That provision lasts until 2022.
Who knows how fast air travel will rebound? It depends on the virus. But if the government ends up with a significant stake in one or more airlines, the political demands will make this look like peanuts. House Speaker Nancy Pelosi’s coronavirus relief proposal last week would have forced the airlines to give every traveler a readout on greenhouse emissions, customized for “each aircraft and the flight route.”
Mr. Mnuchin has been given the power to take airline equity on the taxpayer’s behalf, and he seems intent on using it. The White House should make clear that it will dispose of this stake at the earliest convenience. Helping the airlines weather a 100-year pandemic might be, arguably, within the government’s job description. Owning them isn’t. There used to be a company called US Airways, and there’s no sense dusting off that livery for Uncle Sam’s airline.
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