Government Bailouts in U.S. Industry 
September 10, 2020. Action by Chicago, Illinois, flight attendants
calling for extension of payroll support program. (AFA)
The necessity for a new
direction serving the people and
not private profit of the rich The colossal failure
of the U.S. ruling elite to deal with the
COVID-19 pandemic has contributed to a crisis in the airline
industry that shows every indication of continuing into the
winter. People are not travelling, either from fear of contracting
the virus or because of government restrictions. In effect, the
economic crisis results from the inability or rather
unwillingness of the ruling elite to mobilize the working class,
the human factor/social consciousness, to deal with the health
emergency. This reluctance is embedded in the hostile unequal
social relation those who own and control the means of production
have with the working class. The ruling elite view any
development of the human factor/social consciousness of the
working class as an opening to the empowerment of working people
and a threat to the continued economic, political and social
dominance of the uber-rich oligarchy, the imperialist class. Airline
Crisis Airline reports for the third quarter
(July, August,
September) reveal a situation that has not improved since the
spring. Passenger volumes across major U.S. airlines are down 65
per cent from last year. American Airlines (AA), Southwest
Airlines and Alaska Airlines each report their gross income from
operations is down about 70 per cent in the third quarter
compared with the same period last year. United and Delta also
report large quarterly losses with gross income down nearly 80
per cent compared with last year. All carriers collectively say
they are losing about $200 million per day as they cannot fully
realize (sell) even the reduced number of available passenger
seats.[1]
AA reports a loss of $2.4 billion over the third quarter,
while Southwest lost more than $1.1 billion and Alaska more than
$430 million. Airlines collectively say they will cut their
production (capacity or available passenger seats) for the rest
of the year to just 30 per cent of last year's production.  Companies in the airline industry have demanded
thousands of
industry workers take buyouts or pay cuts. In September alone,
United and AA furloughed more than 32,000 workers. Reports are
rampant of layoffs, even with government paying subsidies to
companies to keep workers employed. A congressional committee
reported on October 9 that the U.S. Finance Department allowed
aviation companies to keep relief money that was supposed to go
to workers. Business Insider reporter Tyler
Sonnemaker
explains: "The Trump Administration's mismanagement of a
coronavirus bailout program that Congress created to 'preserve
aviation jobs' has instead led to 16,655 layoffs across the
industry while overpaying companies that fired workers, a
congressional investigation concluded earlier this
month."[2]
The concrete conditions of the airline productive forces have
forced a discussion on their status within the economy and the
necessity for a new direction. Voices are being raised that the
airline industry should be deemed a public trust administered by
a public authority with the aim to serve the people and economy
and be held accountable to the people. Discussion is growing that
the airline industry is a necessary means of production or public
infrastructure for the modern economy, in effect a public utility
that must be stable and not subject to recurring crises as is
presently the case in the hands of competing private
interests. The general sense of the discussion is
that a public utility
would serve the people as an important infrastructure of a modern
economy, especially in a country as large as the United States. A
public utility, a social means of production, should not be in
the hands of competing private interests with their aim for
maximum private profit. Ownership by competing interests, each
with an aim for maximum private profit, is in contradiction with
the aim of serving the collective interests of the people and
economy. Pay-the-Rich Government Bailout for U.S.
Airlines U.S. airlines were offered a reported
$60 billion in financial
assistance last March as part of the $2.2 trillion Coronavirus
Aid, Relief, and Economic Security Act (CARES Act). Of
note is the fact that the CARES Act has come into being, passing out
billions to companies, while the 2008 federal government Troubled
Asset Relief Program (TARP) and the separate bailout of Fannie
Mae and Freddie Mac totalling $700 billion are still in
existence.[3]
The airline portion of the current CARES Act includes
$25 billion in straight grants intended for companies throughout
the airline industry, some of which was directed at paying workers
so they would not be furloughed. This aspect of the program has
been widely criticized as full of holes.[4] Another $25
billion was made available as loans
for the largest passenger airlines and another $10 billion as
grants and loans for cargo airlines and aviation
contractors.[5]
The U.S. Congress was negotiating to extend and increase the
$25 billion grant program for airlines and the separate $25
billion loan program available to airlines, certified repair
stations and ticket agents, but because of the bitter fight
between contending factions of the ruling elite and their cartel
parties for control of government and the public treasury the
talks were postponed until after the November 3
election. Airline Ruling Elite's Expropriation of
Realized New Value
to Pay the Rich Roger Lowenstein writing in the New
York Times exposes
the practice of airline companies paying their stock holders and
executives millions of dollars from realized new value rather
than keeping it as insurance for the inevitable crisis or using
it to refurbish the industry. For Lowenstein the imperialist
practice of paying the rich through stock buybacks and huge
payments to executives is anti-social. The same airlines that
engaged in these practices prior to the pandemic are now
demanding government bailouts, which shows that pay-the-rich
schemes in different forms exist in "normal" times as well as
during crises. Lowenstein
reminds his readers of the recurring crises in the
sector and that you can predict with certainty that the money
from realized new value will soon be needed "for a rainy day"
crisis such as the pandemic. Instead of putting money
aside "for a rainy day," he writes, "From 2014 through 2019 the big
four carriers
(American, Delta, United and Southwest) plowed $42 billion into stock
repurchases in the hope of improving their share prices." Lowenstein
remarks that during a period of large
realized new value airlines should make funds available for
reinvestment or
insurance rather than gifting owners of stock higher prices
through buybacks and giving huge bonuses to senior executives.
The author wishes for something that is in contradiction with the
aim of those who own and control the economy and can only come
into being if working people force the issue. Aside
from paying the rich with stock buybacks and extravagant
executive payoffs, during the same period before the pandemic the
airlines borrowed massively. They collectively increased their
debt on average 56 per cent from 2014 to 2019. For example,
during this period of sizable realized new value, AA increased
its outstanding debt from $18 billion to $33 billion. Lowenstein
writes, "The borrowing binge fit the Wall Street
strategy of leveraging up to increase risk. Temporarily it
worked; airline stock prices moved higher. And stock price was
key to executive pay. Over the six years, the chief executives of
the four carriers pocketed almost $340 million in stock sales.
American's CEO, Doug Parker, was the biggest winner, with stock
sales totalling $150 million. And those figures don't include
stock received but not yet sold." It should be
remembered that servicing of airline debt comes
from the expropriation of a portion of the realized new value
airline workers produce. This servicing continues whether the
gross income and realized new value remain high or collapse as
they have during the current crisis. Servicing debt during a drop
in realized new value means less available profit for executives
and stock buybacks and dividends: enter other pay-the-rich
schemes. Various pay-the-rich forms are regularly used to deal
with servicing this debt during a crisis, including government
bailouts,
Federal Reserve making cheap money available, and Chapter 11
bankruptcy protection. On government bailouts for
the airlines Lowenstein writes,
"The argument for a bailout rests on the premise that airlines
are important to national security. But bailouts save the
shareholders. The assets -- the planes, the gates and so on --
endure, even if the ownership changes. The history of the
industry is riddled with bankruptcies and yet planes keep flying.
The other argument is that bailouts maintain a higher level of
workforce than would otherwise be possible, given that revenue
has plunged."  Lowenstein
refutes this argument and suggests an alternative
to bailouts although he gives scant details how this could be
accomplished other than to suggest that representatives of the
oligarchs in Congress should do it even though they are the
regular architects of pay-the-rich schemes. He writes, "When and
if airline traffic recovers, so will employee levels. In the
meantime, it would be better to send checks directly to the
people, until they find work in sectors that are growing. If
executives are unwilling to forgo their gains, Congress can seize
any carrier that fails, dismiss the chief executive and run it as
a public trust. Let's end the farce in which airlines are
risk-taking enterprises in good times and the public's burden in
bad."
Also related to the airline industry is the
production of its
most important fixed instruments of production, commercial planes
and airports. The public purse heavily subsidizes both these
fixed means of production. This payment of public funds for
airplanes to such companies as Boeing, and for airports, reduces
the market price the airline companies must pay. Boeing
faces stiff competition from the European Airbus
cartel, which it accuses of receiving government subsidies
reducing the market price for its commercial airplanes. The lower
prices for means of production plays a role in reducing the size
of the airline companies' investment in fixed value, thus propping
up their rate of profit. The production of airplanes, which is
also closely tied to the war economy, along with airports, should
become part of a public trust operating in the public interest to
serve the people and economy and not be targets of private
interest, pay-the-rich schemes and the imperialist
warmongers. To his credit Professor Lowenstein
suggests an alternative
direction and aim for the airline industry without, however,
concretizing his view in a practical way. Any alternative
direction must confront the economic, political and social
control of the global oligarchy, the imperialists. The working
class is the only social force capable of bringing into being a
credible pro-social alternative. In this regard, a new direction
also entails the necessity to mobilize the working class to
defend and claim what belongs to it by right and to confront the
sector's real problems with real solutions both in stable times
and crises such as the current health emergency. Federal
Airline Bailout of 2001 and Use of Chapter
11 Bankruptcy
To
bail out the airlines in 2001,
President Bush signed into law the Air Transportation Safety
and Stabilization Act, which gave public funds to airlines in
"compensation" for their reduced gross incomes following the 9/11
attacks. The act gave the airlines $5 billion in grants and an
additional $10 billion in loan guarantees or other federal credit
instruments. Chapter 11 Bankruptcy
Chapter 11 bankruptcy protection acts like a
pay-the-rich
scheme. The big airline companies have used it many times this
century. Between 2002 and 2011, American, Delta, Frontier,
Northwest, United and U.S. Airways all filed for Chapter
11.[6]
Richard Squire in an article in the Washington Post
titled
"U.S. airlines don't need a bailout to stay in business" points
out, "All [airlines while in Chapter 11] kept flying throughout,
and all emerged intact. (Some have since consolidated by merger.)
Most of their customers didn't even notice." Squire
writes, "Once a public company [not public as opposed
to privately owned but rather one listed on public stock
exchanges -- TML Ed. Note.]
enters Chapter 11, it rarely has difficulty raising
new credit to cover operating costs, such as payroll. This was
true even during the 2007-2009 financial crisis, when, despite
the general credit crunch, private bankruptcy lending reached a
new peak. Bankruptcy loans to companies in Chapter 11 are
extremely safe, because the Bankruptcy Code gives the bankruptcy
lender a high-priority claim on the assets. And potential bank
lenders are now [in 2020] flush with cash, thanks to the Federal
Reserve's market interventions in recent weeks." Squire
notes, "The airlines aren't running out of cash because
their debts are coming due sooner than expected. They're running
out of cash because their revenues are much lower than expected.
That's a solvency problem, not a liquidity problem. Losses are
inevitable. The only question is whether Washington leaves the
losses with private investors or shifts them to taxpayers." He
continues, "The president has also said he wants to back
the airlines because the current crisis is 'not their fault.'
True enough, but an industry's investors ought to bear
responsibility for its direct social costs. Otherwise, the
industry grows too large while under-investing in precautions.
Airlines doubtlessly provide a socially valuable service. But, as
we have seen, that service can sometimes contribute to the spread
of a contagious disease. The risk of further spread is why
governments are banning international travel and why the public
is shunning cramped airplane cabins. The resulting drop in
industry revenue is thus the manifestation of a business risk
inherent in the service the airlines sell. Airline investors, not
taxpayers, should bear the resulting losses." Richard
Squire also writes of the airline companies
blackmailing the public into believing that only through
pay-the-rich schemes can "draconian measures such as furloughs"
be avoided. In a joint letter to political leaders in Congress in
September the companies warned that unless they immediately
received an additional $29 billion in "worker payroll protection"
grants, plus another "$29 billion in loans or guarantees" massive
layoffs would occur along with possible bankruptcies. Of course
the private interests in control would never suggest a new
direction for the industry to make it a public trust with a new
pro-social aim to serve the people and economy. Instead, they
insist on pay-the-rich schemes to entrench their private power,
wealth and imperialist class privilege. Notes1. The situation in
Europe is similar with IAG, a global
investment cartel that controls British Airways, Iberia and other
airlines and industrial and financial interests. IAG reports its
airlines suffered a decline in gross income of more than 80
per cent in the third quarter compared with a year ago and that
its planes are regularly only about half full. 2. Business
Insider writes, "The Payroll Support Program [PSP], which
was
established under the CARES Act and expired this month,
tasked the U.S. Treasury Department with allocating U.S.$3
billion to aviation contractors to help them avoid unnecessary
layoffs as the pandemic ground travel to a halt.
"The money was intended to cover companies'
payroll for six
months, until September 30 -- and in exchange, recipients were
supposed to keep workers employed for those six months.
"But the Treasury Department's 'delays' and
'perverse'
approach to implementing the PSP encouraged companies to fire
workers while they waited to receive funds, the House Select
Committee on the Coronavirus Crisis concluded in a report
published on October 9. [...] "'These
delays led at least 15 different aviation contractors
to lay off or furlough at least 16,655 employees before the
agreements took effect -- more than 15 per cent of the existing
aviation contractor workforce,' [the report] said."
The House report is available here.
Sonnemaker points out that the U.S. Treasury
Department "let
companies continue to lay off workers while their PSP
applications were pending." According to the report, "This
decision had the perverse effect of incentivizing companies to
lay off or furlough workers before executing the agreement [and]
stockpile the money rather than
rehire laid-off workers." "Swissport,
Gate Gourmet and Flying Food Fare were among the
companies connected to the aviation industry that, according to
the report, laid off workers while accepting coronavirus relief
funds -- and some companies used the funds to pay their top
executives. The report found that Flying Food, for example,
received more than $85 million in taxpayer dollars and 'restored
senior executives and management to full pay' even when many
others at the company were being laid off," Alternet noted.
The newsletter ProPublica
gives examples of these
practices in a particularly poignant article available
here.
3. ProPublica says as
of
August 12, 2020, the 2008 TARP and Fannie Mae and Freddie Mac
bailouts have dispensed $634 billion of public funds to 983
corporate recipients. The newsletter keeps a bailout tab of the
hundreds of companies receiving public funds from both programs
and how much has or has not been returned. The bailout tracker is
available here.
4.
"The Trump administration let
aviation companies lay off more than 16,500 workers while taking
coronavirus relief funds -- some used the money to pay executives
-- according to a congressional report," Tyler Sonnemaker,
Business Insider,
October 20, 2020. 5. To date, seven large carriers
have
received more than $12 billion through the CARES bailout program.
American Airlines received $5.8 billion, United $5 billion,
Alaska $992 million, JetBlue Airways $936 million, Frontier
Airlines $205 million, Hawaiian Airlines $292 million, and
SkyWest $438 million. Five
airlines have struck agreements with the Treasury
Department for portions of the $25 billion in federal loans
during the pandemic: American Airlines, Hawaiian Airlines, Sky
West Airlines, Spirit Airlines and Frontier Airlines.
Last spring, U.S. airlines started receiving
portions of an
additional $25 billion in grants to pay for workers' wages. Cargo
air carriers received an additional $4 billion. Talks were
underway in Congress to extend this program through to next March
but the election fight between the two cartel parties of the rich
has postponed a decision. A
list of the hundreds of airline companies that have already
received payroll support from the federal government is available here.
The U.S. Department of the Treasury writes:
"Payroll Support Program Payments
"Section 4112 of the Coronavirus Aid,
Relief and Economic
Security Act (CARES Act) authorizes the Treasury
Department to provide up to $32 billion to compensate aviation
industry workers and preserve jobs. "The
Payroll Support Program under Division A, Title IV,
Subtitle B of the CARES Act provides payroll support to
passenger air carriers, cargo air carriers, and certain
contractors for the continuation of payment of employee wages,
salaries, and benefits. A total of up to $25 billion is available
for passenger air carriers; $4 billion for cargo air carriers;
and $3 billion for certain contractors." 6. Chapter 11 is similar to the Companies'
Creditors Arrangement Act (CCAA) bankruptcy
protection for big companies in Canada. Canadian workers are very
familiar with the infamous CCAA, which is frequently used to
attack their pensions and benefits and generally for the rich in
control to escape as unscathed as possible a crisis either real
or concocted. The Stelco steel company in Hamilton, Ontario
concocted a CCAA bankruptcy in 2004, which Local 1005 of the
steelworkers' union exposed as a massive pay-the-rich fraud.
Details of this struggle are available in issues of TML Daily
published at the time. The
rich in control of a company under CCAA, but also those in
charge of the bankruptcy process such as the cartel Ernst &
Young
Global Limited, use the process to feather their own nests, attack
the working class and force certain competing investors to give
up a portion of their investment in the company under CCAA, to
"take a haircut" as they say. Once
workers and certain creditors have "taken a haircut"
through Chapter 11 or CCAA, companies such as the U.S. airlines
are then released from bankruptcy protection to continue
operations. Other companies in bankruptcy protection may be
dissolved with the rich in control escaping with the lion's share
of the assets and workers are left to pick up the pieces of their
lives without the security of jobs, benefits and pensions
which they have worked for years to build.
This article was published in
Volume 50 Number 44 - November 14, 2020
Article Link:
Government Bailouts in U.S. Industry
Website: www.cpcml.ca
Email: editor@cpcml.ca
|
