As talks between the White House, Congress and America’s C-suite intensify with the spread of the coronavirus, the U.S. airline industry is poised for a bailout that it hopes will return planes to the skies when the crisis is over.
While the size and scale of the coronavirus epidemic are unprecedented, the industry is no stranger to the legislative halls of Washington, D.C. After 9/11, the airline industry was decimated, seeing losses of roughly $34 billion.
Back then, the airlines were given about $15 billion: $5 billion in aid and another $10 billion in loans spread out across companies based on capacity. It only took 12 days for President George W. Bush to sign it into law.
Now, with the coronavirus expected to cost the industry between $63 billion and $113 billion, airline leaders and their powerful lobbyists are “optimistic” that the industry will be receiving help once again in some form.
But time is of the essence. The market is in free fall and airline stocks have tanked. Delta’s stock traded at $60 a share in July, but was in the low $20s at the time of publication. In a letter to his staff, Delta’s CEO Ed Bastian said revenue for March was down $2 billion already compared to last year, and April could be even worse.
“At the moment, the market is shooting first, asking questions later. Nobody wants to stick around and wait for the data,” said Stephen Trent, an analyst who tracks airlines for Citi Research. “The demand shock we’re seeing looks deeper than on Sept. 11, SARS or even the credit crash. This is sort of uncharted territory.”
On Tuesday, the trade group Airlines For America (A4A) released a statement mapping out its requests to legislators, which consisted of more than $30 billion in immediate grants, $30 billion in loans, and additional tax breaks. A day later, A4A released another statement calling what the industry is facing “worse than the financial and operational impact caused by 9/11.”
Before the coronavirus crisis began, airlines were on track to have a record year. “If you look at the big airlines in the U.S., they’ve had earnings of $10 billion last year. This isn’t a failed group,” Trent said.
According to A4A, airlines also support about 750,000 American jobs, and it’s hard to imagine a country the size of the U.S. functioning properly without air transportation. The same can’t be said for cruise ships, a purely leisure and recreation industry.
Even so, President Trump has said he intends to help everyone, though he muddied the waters earlier today by saying he’d consider the U.S. government taking equity in some of the companies that seek a bailout.
“We will be helping the airline industry, we will be helping the cruise industry, we will probably be helping the hotel industry,” Trump said.
Leaders in the hotel industry have already asked for roughly $250 billion in aid, with Marriott already beginning to furlough tens of thousands of employees.
Even though Trump has been adamant that airlines would be taken care of, there’s currently a rift between what the airlines want and what they’ll be given. A majority of the White House’s proposal was in loans, not the grants that would provide immediate cash assistance, according to Politico. Also, no bailout will get through Congress without conditions, which may include cutbacks on carbon emissions and limits to executive bonuses.
Meanwhile, airports are asking for an additional $10 billion in relief, and Boeing, which makes most of the planes flown by U.S. airlines (including the troubled 737 Max 8, which has been grounded for over a year) has also asked for a bailout.
“There will be some attempt at consistency in the way different industries are treated,” said Arnold Barnett, a professor of statistics at MIT who studies the airline industry. “In that sense, the airlines might not get as much direct money as they’d like.”
Although it’s unclear how the bailout would be sliced and shared, $50 billion could provide the major airlines with enough cash to keep them afloat for a year without a penny of revenue from commercial flying.
“An assessment is going to be made about how vital some of these industries are to the economic engine of this country, or not,” Trent said. “Airlines have a good case that they are vital.”