US government should inflict 'pain' on airlines before the industry can be saved: former auto czar
The major U.S. airlines will clearly need a rescue from the U.S. government as they battle to survive plunging global travel amid the COVID-19 pandemic.
And according to one D.C. insider with expertise in crafting large sector relief packages, the airlines need to pay dearly to get what effectively will be a government-backed bailout.
“I think the airlines are facing challenges. They have already gotten substantial Federal aid. They may well need more financial aid,” said Willett Advisors Chairman and CEO Steven Rattner on Yahoo Finance Live. Rattner led the auto rescue plan as a czar under the Obama administration during the Great Recession back in 2009.
As part of the roughly $50 billion auto rescue package, the government took stakes (have since sold) in General Motors and Chrysler. The move to take the stakes — while saving the auto sector — was seen at the time as penalizing risk-taking shareholders and executives, but also as a way to allow Uncle Sam to partake in an eventual industry recovery.
Rattner thinks a similar approach with airlines should be taken now.
“As a condition of getting government aid, you would expect the private stakeholders, equity holders in particular, to absorb a fair amount of pain in return for the government rescuing their company. And that was not done the last time around when Treasury Secretary Mnuchin led the airline stimulus package. So I am open to more stimulus for the airlines. I think it may well be needed, but I think it needs to come on terms that are more favorable to the taxpayers for providing this money,” Rattner added.
Airlines received $25 billion as part of a broad fiscal stimulus plan passed in March. But that plan expired on September 30, and now airlines are furloughing workers and figuring out more ways to cut costs and survive a prolonged pandemic. Those cost-cutting efforts could weigh on the airline sector’s recovery in 2021 and beyond, raising the stakes on survival for some well-known airline brands.
To be sure, the financial toll on the airlines from the pandemic is brutal.
The International Air Transport Association (IATA) said recently the airline industry will lose $157 billion this year and next. Previously, the IATA had forecast $100 billion in losses for the two-year period.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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