Government Aid and Government Stakes

The current version of the Federal assistance to American airlines contemplates the government taking stakes—in the form of warrants convertible to (voting) common stock—in return for sending money to the airlines to help tide them over the disruptions resulting from the current Wuhan Virus situation. There are a number of objections to such a condition, most of them valid. Flight attendant unions have their own objection. They’ve

urged federal officials not to make grants to airlines contingent on government stakes, saying they believe executives would refuse—costing jobs in an industry hard hit by the coronavirus pandemic.

I have a couple of thoughts on the flight attendants’ objection; I’ve already expressed my objections to the government taking stakes in private business.

One thought is that the jobs supposedly to be lost would be, primarily, union jobs, and that can only be good for the airlines’ bottom lines as labor costs come down, especially if replacement hires on the turn-around are not from unions, and that would be terrific for the traveling public.

The other thought is that it’s not a foregone conclusion that the airlines, or very many of them, actually need government assistance, for all that airline management would like to have such bailouts.  Recall the Panic of 2008, wherein three auto companies of the American auto industry, supposedly needed government bailouts. GM and Chrysler jumped on those bailouts with both feet. Ford, though, despite pressure to take the bailout, refused to take the money; it said it would stand on its own feet (it did take a credit line against a potential need, but it never did tap even that).  Ford is thriving today, even playing a leading role in producing badly needed medical equipment.

So it will be for competently managed airlines centered in the US.

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