The Case against Bailing Out the Airline Industry

Abstract

Even if one is sympathetic to the idea of helping industries in times of crisis, the critical question to ask is, Are there more effective ways to resolve a company’s financial problems than a taxpayer-funded bailout?

While the airline industry is always fast to request a bailout, such a bailout is rarely appropriate. As far as bailouts go, it is preferable to extend loans to firms than outright grants. Nevertheless, before the government considers any sort of bailout for the airlines, airlines should always first go through the bankruptcy process.

As the United States has seen in the past, airline bankruptcy does not present any significant contagion risk to the economy. Airlines have often flown through bankruptcy successfully—American, Delta, and United have all done it—and airlines that each has merged with have done it as well, in some cases more than once, without jeopardizing airline operation or safety. And any help for workers should address the needs they face independently of which industry they work for.

A hasty legislative package, pushed through in an emergency when the industry is weak and voters are panicked, should be kept as limited as possible. The risk is that operational reforms imposed under these circumstances will make the industry worse off once the crisis passes.