Former American Airlines exec: $50B government infusion to the airline industry isn’t the answer

The government is closing in on a $50 billion infusion of emergency aid to the airline industry in light of the extraordinary decrease in demand for air travel following the onset of COVID-19. While well intentioned, the proposed package is insufficient to ward off catastrophic airline failures.

Many people reference the terrorist attacks of 9/11 as a basis of comparison to the destructive force of COVID-19. No question, the terrorist attacks of 9/11 wreaked havoc on the country and the air transportation industry. Most major carriers were forced to seek bankruptcy protection in the months and years that followed. However, COVID-19 is nothing like 9/11.

Airlines are grounding hundreds of aircraft, cutting schedules upwards of 30% domestically and 75% internationally. Those numbers will most certainly increase in the coming weeks. While 9/11 resulted in a complete shutdown of the commercial air transportation system for several days, COVID-19 will likely lead to a more prolonged period of massive reductions of airline service. And, when service returns, it will likely be much more gradual as passengers overcome their fear of social interaction. No airline can sustain the devastating impact of the virus.

Most industries in the country will suffer debilitating financial consequences from the effects of the virus. Understandably, it is difficult to weigh the financial, economic and public value of one industry against the value of another. That said, the airline industry is perhaps the single most important spoke in the economic wheel of our country and it is imperative that we maintain a healthy, vibrant commercial air transportation system.

The question is how to best protect this industry against the crippling effects of COVID-19.

One thing is certain. A race to the steps of the bankruptcy court is not the answer. A bankruptcy filing is a powerful business tool, but works only if the debtor has the cash flow required to remain in business while it reorganizes its affairs and has the capacity to develop and implement a viable business plan.

Commercial airlines cannot fulfill either threshold. With a prolonged slowdown, they won’t have the necessary cash and they certainly won’t have the wherewithal to reorganize their business in the midst of the crisis and an unknown future.

Likewise, a one-time $50 billion government bailout is not the answer. Given the rapidly changing environment that directly impacts air travel, it is simply not possible to calculate the financial support required to maintain airline solvency. Nor is it feasible to expect Congress to approve multiple appropriations to prop up individual airlines after they burn through their allocated share of the first $50 billion.

The solution: A carefully crafted longer-term arrangement between the airlines and the government whereby commercial airlines would receive assurance of continued economic support during the pendency of the crisis. Without such an assurance, airlines will inevitably end up in Chapter 11 after exhausting the initial cash infusion.

In exchange, Congress should rightly demand a number of concessions from airline management. Prohibitions on stock buy-backs, limits on executive compensation, essential air service commitments, employee pension funding, honoring health care benefits, and restrictions on overseas aircraft maintenance, are all fair game.

It is rarely wise to use taxpayer money to assist public companies, but this is no time for debate the propriety or wisdom of entangling government and private enterprise. These are grave times and drastic measures are needed immediately to save the airline industry from certain demise.