Mnuchin: Airlines “top the list” for federal loan assistance


“Are the airlines going to lose a lot of money? Probably,” said Scott Hamilton, industry analyst and chief executive officer of The Leeham Company. “But it’s still too early in my view to seriously suggest that a bailout would be warranted.”

Hamilton noted that the September 11, 2001 attacks resulted in an extended flight ban, major security changes at airports and continued fears of terrorism. In addition, there were “a number of weak airlines” that failed to qualify for government loans.

“You really didn’t have that today,” Hamilton said. “They had an industry consolidation. They had fusions. They had airlines that went out of business. And you didn’t shut down the industry.”

Because of this closure, “there was a lot of despair after 9/11,” he said. “Airlines started pricing just to generate cash, and to some extent it didn’t matter what kind of losses they took as long as they could generate some cash.” Today, that “sense of desperation” no longer exists .

Bob Mann, another industry analyst, agreed that airlines are financially stronger than they were around 9/11 or during the financial crisis.

“The industry structure and the companies The individual balance sheets are in far better shape,” he said. “Even the worst balance sheets are better than the average balance sheets from 2008 and 2001.”

Several analysts also said low fuel prices could act as a buffer.

“I think what might not be fully understood is the extent to which the dramatic cuts in fuel prices are a significant buffer,” Mann said. “They have tremendous savings, some of which will offset lost revenue associated with business travel demand.”

In fact, that’s another key difference between now and after 9/11, when fuel prices skyrocketed. In fact, Southwest Airlines was regularly cited at the time as being better positioned to weather the industry slump because it had a reasonably priced, long-term fuel insurance contract. (Of course, airlines with higher-priced fuel hedges will suffer.)

Airlines have also taken what Mann called “prudent” steps to reduce capacity as demand falls. Major US airlines have reduced their capacities at home and abroad by 20 to 25 percent in some cases.

There is also little interest on Capitol Hill in large-scale financial aid for industry.

“Last time I checked they were very profitable so I assume they have some sizeable cash reserves so I would say it’s premature to think about saving an industry,” said Rep. Peter DeFazio ( D-Ore.). Chairman of the House Transportation Committee, told reporters.

His Republican counterpart, Rep. Sam Graves (Mo.), was also skeptical, saying he doesn’t think “it has to be a bailout.” But they will definitely get hit, that’s for sure.”

Graves said he may be more interested in tax breaks for the industry than “direct money” for airlines.

It is also unlikely that there would be any significant public support for a bailout.

“There’s not a lot of public love for airlines,” said travel industry analyst Henry Harteveldt. “Airlines haven’t done much to present themselves as warm and fluffy companies. So there won’t be much consumer support for some sort of airline bailout.”

Doug Palmer contributed to this report.

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