On Monday, Congressional Democrats proposed a $750 billion stimulus package to mitigate the damage being done to the economy by the shutdowns (soon to be, lockdowns) over COVID-19, the Coronavirus. Not to be outdone, President Donald Trump and Treasury Secretary Steven Mnuchin upped the ante Tuesday with a stimulus proposal of $850 billion which they quickly morphed into a package in excess of $1 trillion.
A significant share of the funding would go to businesses like airlines and cruise lines hard hit by the wave of quarantines that has turned tourist destinations into ghost towns and left many planes grounded and many ships docked. Left unmentioned, but certainly to be included, will be a bailout for the hotel industry from which Trump refused to divest upon his inauguration.
Two questions quickly come to the forefront when considering bailing out these multi-billion-dollar corporations in a comparable way the auto industry and the banking industry were bailed out by taxpayers a decade ago.
Should American tax dollars go to bailout cruise companies which have structured their entire business operation offshore in places like Bermuda to avoid any oversight by (or tax obligation to) the American government?
Should American tax dollars should go to corporations (like airlines and cruise lines) who have for a decade (or, in the case of the auto industry circa 2009, for decades) made stunningly bad (and risky) business decisions with only their own greed and the desire to return maximum short-term return on investment to shareholders as motivating factors?
Delta Airlines made a profit of $6.2 billion in 2019. They made a profit of $7.0 billion in 2018. $13.2 billion in profits in two years is a nice return for a company that emerged from the ashes of bankruptcy in 2007 and was nearly gobbled-up in a hostile takeover by U.S. Airways a year later. A company so flush with cash should not need to come begging, hat in hand, to the White House seeking cash grants to stay flying.
So where is all that money?
Per their annual report, it was “used to invest in Delta’s business, strengthen its investment grade balance sheet, and fund dividends and share repurchases.” They may list those other things, but in the last decade 96% of free cash flow among airlines went to dividends and stock buybacks.
American Airlines bought back so much stock in the last decade they reported negative free cash flow as they tapped financial reserves to spend more on buybacks than their profits even allowed.
The airlines as a group are asking the federal government for $25 billion in “immediate grant assistance” to combat their economic situations. Note, not loans or loan guarantees, GRANTS.
And the airlines are seeking tax relief from excise taxes and for taxes on tickets, cargo and fuel through December 2021.
They also are asking for $25 billion in interest-free loans and loan guarantees.
So, in addition to the grants, they want billions more in taxes waived, which is just a grant by another name.
After 9/11, the industry only received $10 billion in loan guarantees and $5 billion in grants.
The industry is just exiting the most profitable period in its history, with Delta’s revenue growth exceeding 5% per quarter for EVERY quarter since the 3rd of 2017.
Yet the federal government should hand them a bigger bailout now than it did after 9/11?
There no longer seems to be any appetite among corporations for “saving for a rainy day” or other long-term planning. When things are going well, the aim is always to find ways to pay larger bonuses to executives and to drive-up stock price and dividends.
In a way, Congress operates the same way. When things are going poorly, borrow trillions and add it to the debt. When things start going well? Time for massive tax cuts. Sure, they could use that surplus to pay down the debt, but why not give it to rich people and corproations instead. Then, if they use it generate tax reveneue (which they never do because the tax laws are written to protect/exempt them), that revenue can be used to pay down the debt.
Last year, Delta made a $6.2 billion profit. Southwest made $3.2 billion. American made $1.6 billion.
So, let’s see if we have this straight. An airline invests ALL its resources in one of the most volatile and cyclical businesses there is (an airline), literally putting ALL their eggs in one basket., a basket they figuratively leave lying on a high-traffic runway.
Then, when the downturn they never bothered to plan for or save for inevitably hits, the American taxpayers must bail them out?
The same is true for cruise lines.
Over the last few years, prices have risen steadily, as have passenger counts, while staffing and services have declined. Like the airlines, the cruise industry has been (for several years) all about grabbing as much money as they could as quickly as they could (often with the aim of buying back stock or otherwise rewarding shareholders) with little set aside for a rainy day.
Look, as economist Milton Freidman said, “There is one and only one social responsibility of business, to use its resources and engage in activities designed to increase its profits…” The airline and cruise industry have been doing that for years, behaving as if their only responsibility was to increase profit and to return that profit to stakeholders.
Royal Caribbean made a profit of nearly $2 billion in 2018.
In 2019, their revenue and profits hit record highs. One reporter who listened to a 2019 earnings call described it this way, “The cruise company seemed almost baffled by how good its results were, with revenue increasing across the board.”
They have nearly $12 billion in equity in their assets (ships, islands, etc.). Yes, this shutdown (and the lower occupancy once cruises resume) will have devastating impact on their bottom line. But they won’t go out of business and they don’t need OUR tax dollars.
At what point do we stop being held hostage by these corporations playing taxpayers for suckers?