Congress should consider extending loans to airlines

A primary motivation for providing more aid is helping families and businesses, but a concurrent motivation is keeping the economy and its supply chains intact. The plight of the airline industry is well known. Business has plummeted, and the airlines are hemorrhaging millions of dollars every day, a reality that threatens their future viability.

Yes, plenty of businesses are suffering, so airlines are not unique — but I don’t know of many who are losing $27 million to $40 million each day, as are Delta Air Lines and United Airlines, respectively. If the new stimulus bill is functionally a hedge against continued losses, offering more funding to airlines is worth doing for a number of reasons.

For one, the airlines are critical to economic infrastructure. They connect world economies, carrying goods and carrying passengers for business, tourism, and all sorts of other reasons. The most recent numbers show that the pre-pandemic aviation industry has consistently accounted for more than 5% of GDP, contributing nearly $2 trillion annually. That’s considering both direct and catalytic, or secondary, sectors together. Direct sectors, which include airlines, airports, and manufacturers, account for $850 billion of that, or 2.3% of GDP. Congress has an obvious interest in contributing to the conservation of these economic engines.

Extending aid would also offer airlines the ability to maintain workforce and fleet structures so they can adjust gradually with demand. Delta has already lost almost 19% of its workforce, or 17,000 of its 90,000 employees, to early retirements and voluntary separation packages. More than 2,000 Delta pilots have elected early retirement. Nearly 4,400 employees at Southwest Airlines also have decided to take buyouts.

The story is the same at other airlines, where management teams are working to avoid furloughs in October by offering options. The obvious consequence is that with fewer employees, airlines will have fewer products to offer, lengthening the timeline for recovery. At this point, there’s no way to avoid airline shrinkage, though more aid from Congress would help them avoid shrinking even more.

As for maintaining operations, the current round of aid has been a sustaining force, leaving operational potential largely intact for now. This gives the airlines a great deal of flexibility for making demand-related service adjustments. Delta added nearly 1,000 flights in July above its originally adjusted schedule, something it could do only because it maintained the staffing and airplanes available to do so. Other airlines have responded similarly. Having ready fleets and a ready workforce, both ensured in part by federal assistance, have allowed the airlines to take on additional work as needed. Adding 1,000 flights right now isn’t the challenge it would be in six months were there no significant uptick in business or, in its stead, cash infusion.

There’s admittedly an optics problem with giving more aid to airlines, as many will interpret it as a bailout. That characterization, though, associates it with previous congressional bailouts whose circumstances were entirely different. Wall Street and company were culpable in 2008. The airlines are not. The virus and the government response to it, not the airlines’ own mistakes, caused the current problems.

In any case, considering those concerns, there are a number of ways to provide aid responsibly. Congress could elect to offer only conditional loans this time around. It could expand loan terms to include repayment or partial repayment. The airlines clearly weren’t too scared by the potential for warrants and equity last time around. Congress could also easily earmark funds for certain operational or payroll expenses and require receipts to ensure proper use. It could do all kinds of things.

Some have even argued, “Let the airlines go bankrupt,” suggesting that airlines have gone bankrupt before without much permanent consequence. But the airlines have never all gone bankrupt at the same time, a threat that surely looms. Congress has extreme borrowing power, much more than private companies of varying sizes. That’s much of the reason why it is offering so much assistance to businesses. Airlines have been able to raise some private capital but not nearly enough to avoid becoming shells of themselves by 2021. Aviation is critical enough to the economy that Congress ought to consider extending it some aid again.