Help for airlines must be thoughtful

Our congress appears on the verge of providing financial relief to many large industries that have been hit hard by the change in our daily lives resulting from the coronavirus.

Sen. Elizabeth Warren, among others, has called for caution in writing such legislation, emphasizing the need to assure that hourly workers, the first to be laid off, are also the first to be helped.

To that end, this retired commercial lender offers a few thoughts.

Focusing on the airlines, which have allowed themselves to become troubled businesses — one of the first to be hit by the rapid change in our economy, one of the first to seek a government bailout, and one of the worst at building strong balance sheets that could have eased the burden imposed by these troubled times — is problematic.

Over the last 10 years they have used 96 percent of their free cash flow — their discretionary income — to repurchase their own stock. This did nothing for their employees, it was not a reinvestment in their business, it did not build a rainy day fund. Rather it artificially improved earnings per share — Wall Street’s key measure — and so rewarded senior executives and the large money managers who own the bulk of their shares.

Consequently, many airlines would be candidates for Chapter 11 bankruptcy protection in the near future were it not for the essential willingness of our congress to enlist the American taxpayer as their lender of last resort. Management recognizes that the government will be a less demanding and intrusive lender than one appointed by the bankruptcy court — were there even a banking consortium that would lend what is needed to keep the industry afloat.

While the airlines are in no way responsible for the horrific fall-off of business — no amount of stress testing would have foreseen the virtually empty planes we are seeing — their past practices are making them essentially wards of the state.

Yes, the industry must be saved, but there must be new tomorrow, and here are three elements our congress should incorporate in any legislation:

First, most airlines’ planes are leased. So for them to be eligible their lessors must grant them a meaningful lease payment grace period, one that will enable them to take unneeded planes out of service and reduce or stop payments while retaining the ability to return them to service as the global economy builds to its new normal. This will reduce a major source of cash use, and so the amount of any loan.

Second, that hourly employees be cared for first, salaried workers next and executives who derive nontrivial portions of their compensation from a bonus pool last, and only after all others are made whole.

Third, that the debtor airlines be precluded from ramping up senior executive salaries, paying out bonuses and purchasing its stock until after the bailout loan has been repaid.

Narrowly focused and shortsighted management has placed its interests ahead of its other communities, and must now be held to pay.