fingolfen, RE: I normally don't like bailouts. However, in the week following the attacks, the airline industry itself as cut 100,000 jobs. Unemployment in the U.S. will therefore undoubtedly rise above 5% (the 'magical full employment' number). Some companies will go out of business, but we're not looking at a few weak companies going under and permitting greater strength in the rest, we're looking at an entire industry on the ropes. Can the American economy survive if the airline industry buckles? By "survive," I mean prevent that nasty "D" word from appearing again. We're virtually guaranteed a recession at this point. Consumer spending was the last leg of the economy which was holding us over for a couple of quarters... now that's been kicked out from under it.
If we let the airline industry fall, does it start a domino effect? I think it does, and the net result would be worse for the country in the short AND long term.
Why would the airline industry disappear if they didn't get a bail out? In short, it wouldn't. Some airlines would file Chapter 11, sure, but they'd still be operating. That's why we have a bankruptcy code, so that companies who are overleveraged but still potentially have a sound business model can stay in business.
And those 100,000 jobs that are being cut, would any of those be saved by a bailout? Probably not. Oh, yeah, the airlines wouldn't make as much noise as they are now because the political issue would then disappear, but the fact would remain that the airlines have far too much capacity for current demand. A government bailout wouldn't change that demand. It would only help companies with inefficient capital structures remain inefficient for a while longer.
Look at the most efficient of the airlines, Southwest. Their chances of going under? Zero. That's because they have a reasonable capital structure, and have expanded capacity at a rate that could be supported by long term demand. Rewarding UAL, a major competitor of Southwest, would penalize Southwest for their efficiency.
Exactly what benefit to the US consumer or the people of the US in general (at least those that do not own stocks or bonds in airline companies) do you see from a bailout of the airlines? |
