2.2.1 The Airline Bailouts

First, Title IV of the CARES Act is titled the ‘’Coronavirus Economic Stabilization Act of 2020’’ and provides for $500 billion in loans and investments to American corporations. Of that sum, the Act provides that “$25,000,000,000 shall be available to make loans and loan guarantees for passenger air carriers,” and another $4 billion to cargo air carriers.¹⁷⁶ These seem to only include loans and loan guarantees, and not other investments. The loans are not to exceed 5 years, and will entail certain restrictions on the corporations, namely:

• "until the date 12 months after the date the loan or loan guarantee is no longer outstanding, neither the eligible business nor any affiliate of the eligible business may purchase an equity security that is listed on a national securities exchange of the eligible business or any parent company of the eligible business, except to the extent required under a contractual obligation in effect as of the date of enactment of this Act;

• "until the date 12 months after the date the loan or loan guarantee is no longer outstanding, the eligible business shall not pay dividends or make other capital distributions with respect to the common stock of the eligible business;

• “until September 30, 2020, the eligible business shall maintain its employment levels as of March 24, 2020, to the extent practicable, and in any case shall not reduce its employment levels by more than 10 percent from the levels on such date”¹⁷⁷

For any of these loans or loan guarantees, the government must also receive, for publicly traded corporations, a warrant or equity interest, and, for non-publicly traded corporations, a warrant, equity interest, or senior debt instrument.¹⁷⁸ These loans supposedly cannot be forgiven.¹⁷⁹

Second, Subtitle B of that Title IV, titled “Air Carrier Worker Support,” provides for another $32 billion dollars to the airline industry by way of payments to workers in the industry. This is broken down, specifically, into $25 billion for passenger airline companies, $4 billion for cargo airline companies, and $3 billion for airline industry contractors, such as catering, baggage handling, ticketing, and aircraft cleaning. More specifically, the Act provides as follows:

To preserve aviation jobs and compensate air carrier industry workers, the Secretary [of the Treasury] shall provide financial assistance that shall exclusively be used for the continuation of payment of employee wages, salaries, and benefits to—

(1) passenger air carriers, in an aggregate amount up to $25,000,000,000;

(2) cargo air carriers, in the aggregate amount up to $4,000,000,000; and

(3) contractors, in an aggregate amount up to $3,000,000,000.¹⁸⁰

Here too there are some temporary strings attached. Airlines may not furlough workers during the grant, and there are some restrictions on executive pay. Moreover, to “protect taxpayers,” the Treasury department may seek equity in the companies. According to the Act, “The Secretary may receive warrants, options, preferred stock, debt securities, notes, or other financial instruments issued by recipients of financial assistance under this subtitle which, in the sole determination of the Secretary, provide appropriate compensation to the Federal Government for the provision of the financial assistance.”¹⁸¹

So, for airlines, that amounts to $29 billion in loans and $29 billion in payments to workers, for a total of $58 billion.

On April 14, 2020, the Treasury Department and several airlines reached agreement on the terms of the bailout. The department indicated that the following airlines would participate in the payroll support program—i.e. the grants from the federal government to pay airlines workers: Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines and Southwest Airlines.

According to the New York Times, “American Airlines said it would receive $5.8 billion as part of the deal, with more than $4 billion in grants and the remaining $1.7 billion as a low-interest loan. The funds are intended to be used to pay employees, and the airlines that take them are prohibited from major staffing or pay cuts through September. American Airlines plans to separately apply for a nearly $4.8 billion loan from the department as well.”¹⁸² Southwest Airlines said it would seek $2.2 billion in grant moneys and $1 billion in a low-interest loan.

Now here is where it gets interesting: the associated “warrants.” With regard to the $1 billion loan to Southwest, the Treasury Department is expected to get only $2.6 million in warrants, which can be used to buy an equity stake. The Times reports:

The administration had spent weeks haggling with the airlines over the terms of the bailout, with Mr. Mnuchin pushing the airlines to agree to repay 30 percent of the money over a period of five years. The Treasury Department also has been seeking warrants to purchase stock in the companies that take money. Airlines have complained that Treasury was effectively turning the grants into loans by requiring repayment.

Last week, the Treasury Department said that it would not require airlines that receive up to $100 million in bailout money to give the government equity stakes or other compensation. The government had received over 200 applications from American airlines seeking payroll support and Treasury said that the majority of those were asking for less than $10 million.¹⁸³

So, the corporations are (1) resisting repaying any of the grants and (2) trying to get out from under the equity stakes by asking for grants in multiple lower-level applications.

What is clear is that the corporations are getting significant amounts of money compared to their profits years earlier. And the restrictions, if any, are temporary. As soon as the grant period is over, the corporations will begin laying off their employees. American Airlines already threatened at the end of August 2020 to lay off 19,000 workers.¹⁸⁴

Let’s continue with American Airlines. American made profits of $7.6 billion in 2015—up from about $500 million in 2007 and less than $250 million the previous year. As Tim Wu argues in the New York Times, it used most of those profits to shore up its stock price. “From 2014 to 2020, in an attempt to increase its earnings per share,” Wu explains, “American spent more than $15 billion buying back its own stock.”¹⁸⁵ American Airlines, though, was not the only one. This was an industry-wide phenomenon. As Wu notes, the airline industry as a whole “collectively spent more than $45 billion on stock buybacks over the past eight years.”¹⁸⁶ Other industries as well engaged in these types of buybacks even when the conditions looked risky. “As recently as March 3 of this year, with the crisis already beginning, the Hilton hotel chain put $2 billion into a stock buyback.”¹⁸⁷

So, while American Airlines is now getting bailed out, it spent its profits earlier buying back stock as a way to increase the capital holder’s value. In other words, the airline was extracting value during good times and getting bailed out by the federal government—and our tax dollars—during bad times.

And it is not just the airlines that are extracting profit from the pandemic.

Of the other $454 billion earmarked for the Federal Reserve Board of Governors, these funds can be used not just for loans and loan guarantees, but also for “other investments.” What these include are the following:

"to make loans and loan guarantees to, and other investments in, programs or facilities established by the Board of Governors of the Federal Reserve System for the purpose of providing liquidity to the financial system that supports lending to eligible businesses, States, or municipalities by—

(A) purchasing obligations or other interests directly from issuers of such obligations or other interests;

(B) purchasing obligations or other interests in secondary markets or otherwise; or

(C) making loans, including loans or other advances secured by collateral.¹⁸⁸

Some requirements apply regarding the prohibition on loan forgiveness—although those too may go by the wayside.¹⁸⁹ And this nevertheless represents a huge amount of money that can be invested directly into publicly traded corporations to protect shareholder value.