White House braces for political fight as it prepares airline bailout against coronavirus

President Donald Trump remarks to the media on Capitol Hill after attending the Senate Republican Policy Luncheon on Tuesday, March 10, 2020. Treasury Secretary Steven Mnuchin, right, and Vice President Mike Pence also appear.

Tom Williams | Call CQ | Getty Images

The Trump administration grapples with industries to bail out as thousands of businesses in the United States shut down amid tough measures to curb the spread of the deadly coronavirus.

The United States could lose 8.2 million international visitors this year. This is more than the country lost in the two years following September 11. It is a loss of revenue not only for airlines and hotels, but also for restaurants, retailers and airports. In some states, shopping malls, gyms and movie theaters are closing and authorities are asking restaurants to only offer take-out.

“I don’t see how we can overcome this without large-scale systemic solutions,” said one leading investor. “We’re going to have to rewrite the rules to get to the other side.”

If the White House is successful, these solutions will include financial assistance to the airline, cruise and hospitality industries, Secretary of the Treasury Steven Mnuchin confirmed this weekend. The administration has already started rolling out packages for industries it wants to support, people familiar with the matter told CNBC. The US airline industry confirmed on Monday that it was seeking government assistance of over $ 50 billion, including a mix of direct aid and loan guarantees.

Other measures to deal with the economic crisis may include stimulus options for businesses and individuals, such as a payroll tax cut, which President Donald Trump has called for, despite the inability to garner bipartisan support. Improved loans to small businesses through the Small Business Administration and increased support for states and individuals battling the crisis are also on the table.

Senatorial Minority Leader Chuck Schumer is considering his own proposal in aid of at least $ 750 billion. It would include forbearance from federal loans, a moratorium on evictions and foreclosures, small business assistance and emergency child care.

Problems related to the election year

But while the high-stakes game of choosing how to prop up the U.S. economy is a tough decision any year, the added task of doing so during an election year makes it particularly thorny.

“[The question is], why should the people above be bailed out when the people below are in trouble. And how do you pick the winners and the losers, ”said Professor Matt Dallek, political historian at George Washington University.

As the winners leave, the airline industry will likely attract the most bipartisan support, as the sector is vital to the U.S. economy. It employs 750,000 people and allows travel across the country, including local hubs. Its fall would crush confidence in the US economy.

There are also politicians on both sides of the aisle who have traditionally supported the industry. Democratic Senator Amy Klobuchar is from Minnesota, home of Delta‘s hub in Minneapolis-St. Paul International Airport. Missouri Senator Roy Blunt, a Republican, helped draft the legislation that saved the airline industry from the fallout from the 9/11 attacks.

Still, the industry has angered some lawmakers and consumers for reducing legroom and adding a myriad of fees to boost profits. The biggest players have also consolidated their hold thanks to a decade of mergers. Last year, U.S. airlines recorded their 10th consecutive year in the dark, a break from the boom and bust cycles that plagued the industry for decades. Their balance sheets are much stronger than those that were in debt in previous crises, analysts noted.

Any offer of help to the industry while individuals are in pain is likely to bring these complaints back to the fore.

“They have money in the bank, they are safe,” said Alvin Lewis, owner of Alvin’s Limousine Services. Lewis runs a car service in Austin, Texas. His business was hit hard when South by Southwest canceled its annual festival and conference there.

“For me, I’m a small business owner. In the past four weeks I haven’t made any money at all. I’ve had 300 cancellations for this month and I’m stuck right now – I can’t make payment on my cars, my bills are piling up – it looks like I’m bankrupt. “

Lewis’s perception conflicts with that of the airlines’ assessment of their current woes, but it highlights the difficult line politicians must take to deal with the crisis in an election year.

Both sides have said they will push to support small businesses under new aid.

Don’t call it a bailout

Even if there is the broadest political support for an airline bailout, the government is unlikely to offer it without concessions.

Lawmakers and lobbyists frequently compare any aid to the airline industry to that offered by the government after the September 11, 2001 attacks. In either case, they argue, the challenges facing the industry are not. on its own initiative.

But there is an aversion to using the word “bailout”, and there may be good reasons. Former President Barack Obama’s bailout of the struggling auto industry in 2008 imposed emission caps and the forced resignation of then CEO General Motors. The shareholders were devastated.

But even the agreement to save the airline industry after 9/11 had its caveats. The package, which totaled $ 5 billion in direct grants and $ 10 billion in loan guarantees, came with demands that general managers capped their salaries at $ 300,000. Several airline CEOs and other executives, including those of Delta, United, South West and JetBlue in recent weeks have agreed to either temporarily waive their salaries or to undergo salary cuts.

Controversially, however, it did not include aid to airline workers, an oversight Democrats have made clear they will no longer allow.

“Any agreement to support these industries must focus on workers, who are the engine of success for any organization, and support the working families most vulnerable to the economic consequences of the coronavirus,” said Senator Sherrod Brown, D- Ohio.

Difficult choices

The cruise and hospitality industries, on the other hand, are likely to be more politically controversial.

Many cruise lines are not incorporated in the United States Carnival is incorporated in Panama and Royal Caribbean is incorporated in the Republic of Liberia. They also employ many foreign workers on their ships and have long been considered by Congress for some alleged unsafe conditions on board.

Unlike the airline industry, which has a huge national footprint with hubs across the country and smaller communities dependent on service, there are only a limited number of US ports. This means that any political support is also limited. Meanwhile, the hospitality industry isn’t limited to a handful of key players, like airlines and cruise lines. And any decision to save the hospitality industry is complicated by the fact that Trump himself owns a hotel chain.

“It’s easy to identify an airline,” said Kent Smetters, director of the Penn Wharton Budget Model. “But, what exactly do we mean by a hotel that’s hit hard? Wouldn’t my personal Airbnb count if I had a lot of cancellations. I could see those targets being challenged and the funds dispersed long after the science found a solution. ”

And while the government is helping the airline, cruise and hospitality industries, it’s unclear how quickly it will take each to return to capacity. Until they do, there will be less demand for airplane parts, food services, and hotel linens. The economic impact is likely to have significant repercussions.

“Unlike 2008, unlike 2001 – there isn’t one or two specific industries we’re talking about, and the economic pain we’re going to face as a society is widespread,” said George Washington’s Dallek.

“M are threatened.”

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