Covid Crisis: Should We Bailout Airlines?

Updated: May 23, 2020


Why is this an issue?


Airlines such as Richard Branson's Virgin Air have seen a huge fall in profits as a result of the COVID-19 crisis, and many other European companies face the threat of bankruptcy as soon as May this year. Airlines such as British Airways have already taken action by planning to remove over 12,000 employees as a result of the crisis with other airlines set to follow suit.


What actions are governments taking?


USA


- The US have opted for a 2008 style bailout totalling $25 Billion.


- Larger airlines are required to pay back some of the money with shares in the companies being offered as collateral for the loans.


- This aims to protect employees’ wages and their current employment status whilst ensuring that the companies stay afloat.


UK


- The UK have provided a furlough scheme which provides 80% of an employee’s wages.


- The scheme whilst applicable to the industries employees is not specific to airline companies facing cash shortages like Virgin Air.


- The UK’s Chancellor has stated that as a “last resort” a bailout package will be discussed.


Austria


- Whilst no official bailout has been offered yet Austria is considering a single bailout of the country’s most popular company: Austrian Airlines.


- Austrian Airlines is asking for a bailout of approximately €800 million but has not yet made an official request.


- The Austrian government has stated that in order to receive the bailout certain environmental conditions will have to be met such as compliance with a carbon offset scheme.


Why should we bailout airlines?


- In bailing out airlines the work force is protected both in the short and long term. Over 10 million people are employed in the airline industry worldwide so by letting airlines go bankrupt many people will be put out of work during an unprecedented crisis putting further strain on welfare systems and livelihoods.


- If we want post-lockdown to lead to an economic rebound to ensure the economy gets back on its feet, airlines will need to be protected in the short term so they can still provide travel that is essential for some businesses.


- Most of the bailouts planned contain loans insured against each recipients’ stock. This means unlike the trillion-dollar US bailout earlier this year, the government would own part of the business until the money is paid back into the public purse meaning that a vital industry is kept safe and tax payers do not lose out.



Why shouldn’t we bailout airlines?


- Unlike the 2008 crisis there is little to no chance of a ‘spill over effect’ which means that if one airline declares bankruptcy another large airline will not be affected due to the lack of inter-connectivity within the industry. By providing a bailout now the government risks allocating scarce funds to an industry that could survive in the short term by declaring bankruptcy.


- Airlines are major polluters contributing a total of 915 million tonnes of CO2 in 2019 which could well increase dramatically going forward. Covid-19 provides the opportunity for governments to divest from this pollutive industry and invest into greener methods of travel such as high-speed trains similar to Taiwan and South Korea in 2000.


- Using loans as the basis of bailouts will still require some form of weakened credit check. This then creates the issue of the loans only being available to large companies with good credit who may already have the funds to survive whilst smaller domestic airlines may not be eligible.



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