The U.S. airlines wasted no time telling us how much they wanted to bail them out from this crisis: $50 billion.
Boeing wants more—$60 billion to “support the health of the broader aviation industry.”
The Aeronautical Repair Station Association wants $11 billion.
Airports are asking for $10 billion.
There is no doubt that every day the business outlook for commercial aviation looks worse—within a few days, for example, Delta went from grounding 300 to 600 airplanes.
But before the billions start flowing to the airlines, as they will, we need to make sure that two things happen:
That the money goes to the people who most need it: the roughly 750,000 employees and not the overpaid executives or well-rewarded shareholders;
In future crises the airlines don’t automatically become wards of the federal government. They should have readily accessible cash reserves built up over every year, drawn from profits.
The truth is that the airline industry set itself up for switching suddenly from a cash-gushing darling of investors to playing the role of pauper.
As reported by Bloomberg News, over the last decade the five largest U.S. airlines took 96 percent of the cash they generated and used it to buy back their own shares.
By doing that they joined the club of American corporations doing Wall Street’s bidding: buy the shares, push up the stock price, keep the market rising.
Now that is not a crime. It’s carnivorous capitalism—and it might be okay if the corporation doing it has no social role or really any long-term strategy or obligations.
But in businesses like the airlines—and Boeing—that’s the worst kind of destructive short-termism. The bosses and the stockholders get happily locked into a continuous cycle of self-enrichment and want nothing less.
In the case of Boeing that led to the worst meltdown in the company’s history, the grounding of the 737-MAX, because making profits prevailed over the most basic needs of ensuring that an airplane was safe to fly. The two CEOs most directly responsible, James McNerney and Dennis Muillenburg, both left with huge packages—McNerney with $59 million and Muillenburg—who was fired—with more than $60 million.
In the case of the airlines it seemed never to occur to anyone that by its very nature the business is very vulnerable to boom-and-bust cycles. It is capital-intensive, requiring huge investments in airplanes, and labor-intensive, needing layers of skilled and dedicated people to run it effectively and safely. For example, right now, as the financial nose-dive increases, it is reckoned that the U.S. carriers are burning through $16 billion a month.
And, as previously reported in the Daily Beast, the last 10 years have seen an exceptional run of record profits for the four biggest airlines, American, Delta, United and Southwest. Yet nobody thought that the good times are when you should put some money aside for the bad times. Isn’t that what we are always told we should all do?
Maybe the thought did fleetingly cross their minds. If it did, they probably believed that the federal government would always have their backs.
There’s a bigger point here. In the last 60 years, since the start of the Jet Age, America has built the world’s safest and most efficient domestic airline network. It wasn’t easy. It required amazing technical innovations (in which Boeing was once the stellar performer). And there was an unremitting effort to make flying safer that led to an unequalled safety regime.
It was also a tough business to make money in, and in the end, only the fittest survived, producing what is virtually an oligopoly today, but one that also offers a lot of choice in the value and quality of flying.
In fact, our domestic airlines serve as a privatized public utility. They are as essential to the daily life of millions of Americans as interstate highways, railroads, subways and buses. More than that, they lubricate many thousands of American businesses through flying cargo, some of it essential, like medical supplies.
Now is the time to accept the responsibilities that come with that role. From the outside the companies would not look any different. But if the airlines take the public money, they should serve the public interest a lot better than they have by providing themselves with a level of financial stability over the long term rather than gobbling up all the cash in the short term. That could be mandated by law, just like the banks have the reserve requirement, money they are not allowed to lend.
Lastly, there is Boeing. The Financial Times reported that in January the company arranged a $13.8 billion loan from a syndicate of banks, including Bank of America, JP Morgan Chase, Wells Fargo and Morgan Stanley. This was to help them cover a bill of at least $18 billion dollars arising from the 737-MAX grounding. They have now burned through all of that.
This is a Boeing-designed mess and it should be left to Boeing to clean it up. That could mean bankruptcy and re-structuring, and in the end a healthier Boeing without resorting to a corporate welfare program.