I’m not sure where exactly this falls on the spectrum of “fair enough, I guess that’s not what they were promised” to “talk about looking a gift horse in the mouth.”
Airlines will have to repay some payroll aid
The US government is providing US airlines with a total of $50 billion in aid, as part of the CARES Act.
About half of that was supposed to come in the form of loans, and the other half was supposed to come in the form of grants to cover payroll for employees in the industry.
Well, on Friday US Treasury Secretary Steven Mnuchin told airlines that he wants them to repay some of the $25 billion in payroll grants. The suggestion is that for airlines getting more than $100 million in assistance, 30% of the payroll grants would have to be repaid in the form of low-interest loans.
In other words, of that $25 billion in payroll aid, $17.5 billion would be grants, and the other $7.5 billion would be loans.
Airlines would offer warrants, with the interest rates rising over time if repayment doesn’t occur. The warrants (which would allow the government to buy stocks at a pre-set price and time) would be equal to 10% of the loan amount.
The industry isn’t happy about this
There’s a lot of frustration in the industry with this revelation. Not surprisingly, airline executives aren’t happy, with one airline executive saying “this is not what Congress approved, the aid was supposed to be $25 billion in cash grants and $25 billion in loans.”
Fair enough, because on some level it does seem like a bait-and-switch, and I can see where the frustration is coming from.
Perhaps what’s more interesting is the anger among airline unions, as they’re making some pretty drastic claims based on this development.
Sara Nelson, the President of the AFA-CWA (a flight attendant union representing many airlines), has claimed that “this will lead to airline bankruptcies,” and that “the Treasury Department is destabilizing the industry, not helping save it.”
Meanwhile a representative for ALPA (a pilot union) said that the organization “is very concerned that the US Treasury is threatening the jobs of pilots and other aviation workers by treating grants for airlines like loans,” also saying “this will hurt workers now and in the future, and slow the recovery the CARES Act was meant to facilitate.”
Hmmm…
I can totally appreciate if this isn’t what was supposed to be passed as part of the CARES Act. That’s not cool.
At the same time, when you step back, the outrage here seems out of touch. Even with this, the US airline industry is getting $17.5 billion in grants, and $32.5 billion in low interest loans.
Is this really what we would call “destabilizing the industry, not helping save it?” Will this $7.5 billion really be what leads to airline bankruptcies? That’s $7.5 billion spread out across a dozen airlines, when that amount is only a bit more than US airlines collect in baggage fees every year.
Is that money going back to taxpayers really a bad thing?
Odd management & union dynamics
Perhaps what has been most interesting throughout all of this has been the dynamic between airline management and unions.
Under normal circumstances, unions spend most of their time fighting against management (largely for legitimate reasons). But in light of the current situation they’re working together towards a common purpose.
Fair enough on the surface, though I think the issue is that there has been a complete lack of acknowledgement about how actions by airline management have gotten us into this situation.
There’s also a lack of acknowledgement of the policies that the airline industry has instituted over the past many years that have caused consumers (and taxpayers) to take little sympathy on the industry.
I can appreciate airline employees are concerned about their livelihood, as are so many Americans. But does the CARES Act really tackle that comprehensively? Payroll is covered for employees through the end of September, but then what?
A vast majority of people agree demand won’t fully recover, so will they be looking for more aid then, or what’s the plan?
Bottom line
Apparently 30% of the $25 billion in payroll grants will now actually be loans. And the most powerful flight attendant in the world is arguing that the need for mega-airlines to collectively repay a total of $7.5 billion will lead to airline bankruptcy, and to the industry being destabilized even more.
Color me skeptical.
On the other end of the spectrum, you have this guy…
"Are you arguing to let airlines, for example, fail?"
"Yes," Chamath Palihapitiya said yesterday.https://t.co/dIbizumtqG pic.twitter.com/egZRqj8ysC— CNBC (@CNBC) April 10, 2020
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