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.


1. 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


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