Congress Will Extend Loans and Not Grants to Airlines

Due to the drastic impact that COVID-19 has had on their business and the existential threat they are now facing, airlines are seeking grants and other financial assistance from the federal government to ensure their continued survival. It is becoming apparent that Congress will try to do something to help this industry, but the form of the grants and conditions placed upon them are still up for negotiation between Democrats and Republicans. It is unclear so far whether the financial assistance to the airline industry will take the form of grants or will result in the federal government taking an equity stake in the carriers.

While airlines are seeking grants to help make them whole from all of the losses that they have sustained, there is little political appetite for a straight bailout of an industry that is not very popular with the general public. The Wall Street bailouts of 2008 tested the public's willingness to advance large amounts of government money to save private industries. Even the auto industry bailout resulted in the government owning a large share of the automakers. For their part, the airlines questions their continued ability to operate and remain out of bankruptcy given the steep losses that they have suffered since the outbreak of COVID-19.

The Airline Industry Had Been Seeking Federal Grants

Currently, the draft of the legislation that has been proposed in the Senate does not give the airlines what they are looking for in the form of grants. The draft of the bill would extend $58 billion in loans to the airline industry. These loans would be backed by the airline's assets as collateral for the loans. There was some talk that the federal government would be seeking a stake in the airlines in exchange for financial assistance, but right now the help is in the form of loans.

It remains to be be seen whether this will be the final form that financial assistance to the airlines takes. Some Democrats in Congress have proposed that a number of conditions are placed on this federal aid, including limits on bonuses and buybacks. They remember the scandal that transpired back in 2009 when a bailed out AIG paid bonuses to its top executives.

Certainly, if the Republicans are not seeking to give grants to the airlines, it is highly unlikely that the Democrats would look to do this when the parties negotiate over the bill. The Democrats had been expressing discomfort with some of the corporate bailouts that have been proposed.

Will Loans Be Enough to Save the Airlines?

However, it is unclear whether the loans will work to help shore up the airlines in the long run. The companies have experienced massive dislocations as a result of the coronavirus and may take many years to return to profitability. Their ability to even repay these loans is in question, and they may still end up insolvent in the future. In other words, the decision to make this assistance loans instead of grants may simply be kicking the can several years into the future.

The main airline industry lobbying group has suggested that airlines will need as much as $25 million in direct grants to survive the crisis. They had requested $4 billion to be disbursed immediately. The airlines had asked for a total of $58 billion in aid, but it was in the form of grants and zero-interest loans. Congress is now signaling that it will help, but the terms of that assistance will not be as generous.

Airlines are not the only part of the industry that is struggling. Airports and aerospace companies are also seeking federal grants to make up for losses that they have suffered in the current economic crisis. Boeing has indicated that it will be seeking financial assistance as well, but Congress will likely extend only loans if it gives any aid at all.

For Congress, the difficulty will be in deciding which industries and parts of industries to help since government resources are not unlimited. If the crisis gets bad enough, Congress will be left to pick which industries survive and which ones go under if economic conditions worsen. However, if Congress sticks to its insistence on giving loans instead of grants, it will be easier for the government to help more industries survive this existential crisis. What is clear is that we are still very early on in a fluid process.

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