Happy inauguration day, everyone. Even though this year’s was clearly upstaged by… the existence of indoguration day, it remains one of the most important indicators of the continuance of the American democracy. So today I’m bringing you a special Wednesday guest post from Howard Kass with a message for the new president, Joe Biden, on how he can help bring the airline industry back to health through changing foreign ownership rules.
Howard has been involved in airline and travel industry issues for over 25 years. Currently, he is General Counsel at Pangiam, as well as an advisor to start-up travel companies Landline and SkySquad. Prior to joining Pangiam, Howard was an executive vice president at CLEAR where he opened the company’s Washington DC office and further built out the company’s airport and airline partnerships. Before that Howard spent ~15 years in executive roles at American and US Airways where he led teams solving regulatory and government affairs challenges around the world. After 9/11, Howard helped stand-up the Transportation Security Administration and he practiced aviation law and consulting prior to joining TSA.
Congress has done a good job of supporting the airline industry through the darkest days of the COVID-19 pandemic with cash and loans to protect jobs and help preserve the status quo so it can rebound quickly when the pandemic is under control.
Despite the government’s help, an airline industry return to normal is projected to be 2-4 years off, because while a lot of traffic may come back, airline balances sheets are in disarray, e.g., assets are leveraged and borrowing capacity is at or near maximums. It will take years of profits and growth for airlines to get their financial houses in order.
What if things don’t go well — travel is slow to return, the vaccine is not as effective as thought, or video-conferencing really does become a replacement for business trips? Can the airlines continue to rely on Congressional largess for survival? Probably not. And, as airline employees well know, a trip through bankruptcy court is never a good outcome.
One way to break this lose-lose cycle is for airlines and labor unions to work toward changing the foreign ownership laws to permit true cross border capital flows and/or integration of airlines. Yes, the current immunized alliance model helps airlines act as one company on certain routes. They are not, however, a replacement for large-scale cross border investment and integration, as each alliance member is a separate legal entity with its own shareholders and Boards of Directors who have fiduciary obligations to many stakeholders long before they worry about their alliance partners. Thus, alliances do not unlock all of the cost savings and revenue synergies that full cross border ownership allows.
If foreign investment rules were relaxed so trans-national airline mergers and acquisitions could occur, more synergies unlock as centralization of many functions drives cost savings on everything from office supplies to aircraft purchases. Customers also win as airlines deleverage faster and resume innovating and investing in the flight experience.
The post-pandemic recovery period represents a unique opportunity for airlines to lose the regulatory shackles that prevent a truly global industry. If airline partners were globally integrated in all aspects of their operations, no matter the region, they could achieve efficiencies and synergies that are out of reach today, as well as recapitalize faster at no cost to taxpayers. After the last wave of domestic consolidation, spurred in part by the financial crisis, airlines deployed their new financial resources to reinvest in fleets, customer service, and innovation that led to a rapid improvement in air service and customer satisfaction. Post-pandemic, that same opportunity exists to help a devastated airline industry restart by creating global efficiencies, investment, and innovation through more access to foreign capital.
The time is right for the Biden Administration to lead here. Historic opposition by labor to changes in foreign ownership laws are solvable. Labor unions have the new Administration’s ear and can work with the Biden team to address their legitimate concerns about protecting jobs and growth opportunities. Regulators can require that labor concerns and U.S. jobs are protected, as part of any investment review.
The other historic concern is national security. The Pentagon also has legitimate worries here, as a robust industry is critical to the Pentagon in times of national crisis. The Pentagon can insist on reasonable conditions on foreign ownership, e.g., increased foreign investment is limited to certain countries to ensure that in times of crisis, aircraft that are needed are available. Intellectual honesty demands that we stop worrying about whether a Canadian pension fund or European airline owns a large portion of a U.S. carrier, while there are seemingly no restrictions on U.S. carriers leasing aircraft from Chinese banks. Successive Administrations have learned to manage foreign investment in other critical industries and those lessons can be applied. Ironically, the pandemic likely has reduced the ability of airlines to provide lift to the Pentagon because of the mass retirements of entire fleets of aircraft, including widebodies.
The industry may just weather COVID-19. The best way to ensure it survives the next crisis is to stop worrying about where the owner of the airline is located and let capital flow to the industry, with guardrails, from around the world.
You can reach Howard via LinkedIn and on Twitter @kasslaw.
42 comments on “How President Biden’s DOT and Congress Can Save the Airline Industry Without Spending Another Dime (Guest Post)”
Not going to happen. No one is going to waste time on this.
and lose one of the largest private sector unionized voting blocks?
I don’t think so.
There is a reason why airlines have received so much money in the name of keeping above-average paid employees “working.”
Cant believe I’m saying this, but Tim is spot on.
A few delicious quotes – “Congress has done a good job of supporting the airline industry through the darkest days of the COVID-19 pandemic with cash and loans to protect jobs and help preserve the status quo so it can rebound quickly when the pandemic is under control.”
“Despite the government’s help, an airline industry return to normal is projected to be 2-4 years off, because while a lot of traffic may come back, airline balances sheets are in disarray, e.g., assets are leveraged and borrowing capacity is at or near maximums. It will take years of profits and growth for airlines to get their financial houses in order.”
Translation… TBTF to big to fail & we know how this story plays out.
This same terrible idea gets trotted out every few years. The author doesn’t do a great job at articulating why any of this would actually help the industry recover, and completely glosses over how this would cause a complete race to the bottom. They don’t back up any of their statements with actual facts. Nothing is referenced, and it comes off as someone just opining at a bar about what they think would solve the problem.
I’d love to see the author address the following:
Exactly how would your proposal save US airlines? I want hard numbers.
How would allowing mega cross border airlines be good for consumers? It seems like these super JVs would just consolidate seats even more and would only drive up prices.
How exactly would this proposal protect labor and not do to the airline industry exactly what happened to the cruise industry? This would be ripe for abuse as airlines could staff their newly allowed cabotage flights with cheaper foreign labor. Or they could staff 100% of their international wide body flights with foreign pilots for far cheaper than they’d have to pay domestic labor.
“…and it comes off as someone just opining at a bar about what they think would solve the problem.”
or more likely, someone who’s selling their book. My guess is some of his clients have much to gain from this idea.
I have serious concerns. how would any new airlines possibly enter the industry going forward if all the competition was comprised of global mega-airlines with resources and leverage beyond what we have ever seen? Even for jetblue to get off the ground in 1999, they needed some very serious political favors (unprecedented slot access at JFK) and funding beyond what any airline upstart had raised before. I can’t imagine that merging into just a few trans national mega airlines would be good for the customer in the end (capacity, product, affordability, access to smaller markets would all suffer).
Not to mention – I bet the 10’s of thousands of american workers in corporate functions like route planning, revenue management, finance, IT, etc would be eliminated for cheaper overseas labor.
would be curious to hear some more concrete evidence to backup your claim
I’ve lost track of time….it must be April 1st.
There is no meat in this post. Nothing. Nada. Zilch. Worst guest post ever.
Worst idea ever. Please let us know if your guest writer has ever been compensated for his “opinion”.
That’s a great idea. Let’s allow the CCP to control the US airline industry too. We can use Big Tech as the model for “cooperation”. It would be the coup de grace since they are responsible for the fragile state of the industry. I’m certain the Biden administration is more likely to be amenable to such an arrangement. What does it say about Cranky that he’d allow this idea even to be floated on his blog?
Will these foreign countries allow their airlines to be owed by US companies. I think not…
One word – Nestle .
The author’s connections to both American and USAirways indicate what is really behind this “push” to allow foreign actors (likely Middle East or Chinese money) into the U.S. airline industry.
Delta and Southwest have each raised more than $10 billion in private U.S. capital markets and still have that much remaining in unencumbered assets. In contrast, American used its loyalty program as collateral for the first phase of CARES Act loans and has continued down that path. American’s only hope for not being carved up by the Feds and fed to other airlines is to give access to foreign airlines which don’t function on free market principles.
There is a point at which the free markets have to return to function as they were designed and allow carriers to fail that haven’t figured out how to build viable businesses in 40+ years of deregulation if they can’t adapt to the latest of a continuous sequence of curve balls that are thrown at the industry.
Given that not a single person so far has embraced the idea of foreign control of U.S. airlines in the comments so far, it seems doubtful that getting the concept over the finish line in D.C. is more than a stretch.
Your back must be sore after such a stretch. By that same logic, his time with CLEAR is certainly related to DL’s investment into the technology. They must have an interest now too, right? You can (and will) shoehorn your oft repeated talking points into this comment section, when the article doesn’t even relate to what you are saying.
Since CF specifically noted the author’s pedigree, the connection to the airlines he has served is indeed relevant.
and it isn’t a stretch to note that a large portion of the US airline industry does not need government aid. Some took it because it can’t be handed out to a single airline and call it a competitive, free market economy.
and, yes, Sean, the domestic airline industry was deregulated 42 years ago. Airlines like Eastern, Pan Am, and TWA all failed because they could not succeed in the free market.
Whether some say it or not, I am not cheering for anyone’s failure nor do I have anything against any particular airline.
I do, however, have a commitment to the free enterprise system because it has yielded the best the U.S. airline industry has. Airlines like Southwest would have never come into existence if it weren’t for the entrepreneurial spirit of people that recognized that the U.S. airline industry could be better than what was the norm during deregulation.
If the U.S. decides to re-regulate the U.S. airline industry, then we can truly say that the free enterprise model failed. But if that happens, including by allowing foreign companies to buy out the U.S. airline industry, then it will be to protect a relatively small, weak segment of the industry at the cost of the best getting better.
“American’s only hope for not being carved up by the Feds and fed to other airlines is to give access to foreign airlines which don’t function on free market principles.”
“There is a point at which the free markets have to return to function as they were designed and allow carriers to fail that haven’t figured out how to build viable businesses in 40+ years of deregulation if they can’t adapt to the latest of a continuous sequence of curve balls that are thrown at the industry.”
Tim,
Since when has corporate America operated on “free market principles”? That’s a delusion that has never existed & never will exist.
Oh look. Tim Dunn has once again figured out how to turn any article into a “rah rah Delta. American sucks” rant. Tim, your beloved delta also sold out their mileage program to a third party in the Cayman Islands.
And at a higher rate than AA with the federal loan. Again, Delta had a higher interest rate with their mileage loan…
Don’t kid yourself, Glen and Ed want to retire with their golden parachutes within the next 2-3 years. That’s the reason they went with the more expensive Cayman Islands loan. You’d have to be an idiot to not realize that. That said, your “Delta love — AA hatred” probably won’t allow you to see something that obvious.
Your weird obsession with American entering Chapter 7 is amusing, to say the least.
With all due respect, why did you have to attack the author personally? I think you’re assuming conspiracy theories that simply aren’t there. To that point, I wonder what your reaction would have been if the author was a former Delta executive. The author is entitled to his opinion. So are those who disagree with it. By the way, I tend to agree with you that multinational mergers involving U.S. carriers probably aren’t going to happen any time soon.
To your first comment, what determines who is “above-average paid”? Isn’t that a function of the marketplace? Don’t Delta’s employees receive similar compensation as their counterparts at United, Southwest, and American?
“Whether some say it or not, I am not cheering for anyone’s failure nor do I have anything against any particular airline.”
“I do, however, have a commitment to the free enterprise system because it has yielded the best the U.S. airline industry has. Airlines like Southwest would have never come into existence if it weren’t for the entrepreneurial spirit of people that recognized that the U.S. airline industry could be better than what was the norm during deregulation.”
I & many others here have read your musings over time & it’s the same thing – Delta/ Southwest good, American/ JetBlue bad. And now you want me to believe that it’s the free market that rules the business world? Come on Tim, you can do better than that… it’s money & political favors/ lobbying that rule corporate boardrooms.
To be clear, Tim always considers Southwest awful and horribly run when it comes to Delta’s “amazing job” pushing them out of Atlanta post AirTran acquisition.
What was the random route he used a few weeks back…? Ahhh, yes. Southwest is doing a bad job in Atlanta because they aren’t flying ATL-lax nonstop during the height of the pandemic.
Tim’s love for Delta knows no discernible mental constraints. His ignorant & obsessive hatred for American also knows no mental bounds. The other airlines… I think he flips a coin each day and it depends on how much their business plans threaten daddy delta’s rise to greatness that day.
Ghost,
I will not prolong this dialogue but airline employees do receive above average compensation compared to the American workforce according to Dept. of Labor data even excluding pilots.
I’m not sure why you seem to think my position would be any different regardless of who wrote what was written above. Free markets are free markets. Delta and Southwest have figured out better than American and United how to succeed in a market-driven airline industry.
Let’s stop this nonsense that everyone has to win.
There are hundreds of thousands of small businesses that will fail this year due to factors beyond their control. It is beyond an affront to the American public to argue that airlines can’t fail now when they have multiple times before.
Sean,
Given that the market cap of American and United combined are less than either Delta or Southwest, the market, not me, has determined which airlines are running better businesses.
Jeff,
Delta CONTROLS their loyalty program – as does United. American’s is at the whims of the U.S. Treasury that I can assure you will not lose if AAL cannot pay its debts.
No one is arguing for anyone’s demise. I am arguing for accountability.
As for Keystone, Biden’s desire to have great relations with the global community will take a hit starting with Canada. He has already shunned the Canadian government’s request to spare Keystone.
Oh Tim
Delta would be liquidated just like every other airline if it weren’t for the federal grants. They’ve barely been out of bankruptcy a decade so let’s cool it with how amazing delta is and different they are from United and AA. Southwest actually hasn’t declared bankruptcy. Delta is nowhere close to their financial league.
Delta is literally just the remaining vestiges of bankrupt airlines, to include delta itself.
Not sure how delta controls their mileage program but American doesn’t. Your federal government conspiracy theory should be quite entertaining if you care to share this weird statement. You think the feds are going to randomly take over 100M AAdvantage accounts just… because? You know nothing about the terms of the AAdvantage federal loan because they aren’t public. So chill with your baseless statements.
Jeff,
I’ll make this the last comment but Delta specifically noted that it has $10 billion in unencumbered assets while United, which just reported has consistently not mentioned it – which probably means they have few if any.
It isn’t worth arguing the point but there are clear differences in the financial strength between the US airlines and that was born out with UAL’s report today – and will be the same or worse with American. Delta lost half as much money and got 25% more revenue per revenue seat mile. As hard as it is for some to accept, the strategy of flying full planes and schedules is not working.
When companies make bad decisions – whether it goes back to American’s decision to buy back stock in quantities that exceeded its stockholders equity or United’s decision to acquire used aircraft and fly the highest unit cost regional aircraft possible – the American taxpayer should not pay the price. And selling out the industry should not be on the table because two airlines – American and United – have consistently lost share since deregulation and have had lower financial performance.
I’m sorry if that steps on anyone’s toes.
“American and United – have consistently lost share since deregulation and have had lower financial performance.“
The weird things you write trying to deflect/ignore past other inaccurate statements… American and United are bigger than they’ve ever been.
If you’re going to somehow take the random bankrupt airlines they’ve each acquired and suggest that the failing acquired airline’s share at deregulation somehow matters today…? That may the dumbest comparison you’ve written yet. Not to mention Delta has also lost market share if you randomly add up their past airlines in history at their zenith in market share. How do you come up with this nonsense?
Delta’s financial performance is very recent. If you want to bring up deregulation as some kind of benchmark to measure financial performance in margin, then do your homework. Delta is far from the best margin performer since deregulation.
The American taxpayer bailed out failing delta too. If you want to whine about the American taxpayer saving American and United. Then be honest. They saved delta too. Your biased view toward delta really knows no end.
Tim Dunn: “The free market starts again when delta is most ready but only continues until Delta requires more federal grants”
Tim, I referenced employee compensation among airline employees, not those who stock shelves at Wal-Mart. It’s called an “apples to apples” comparison. Your obvious feelings of animus toward American, United, and jetBlue color your opinions, which is why I rhetorically questioned your bias regarding the author. By the way, I never wrote that everyone is entitled to win. I have no idea where you inferred that.
Wages within the airline industry ARE compared to other industries and other workers, not by me but by the Dept. of Labor.
Jeff,
mergers DO count in how market share over time is calculated.
ALL of the big 4 including WN have lost share because of the growth of carriers such as AS B6 and the ULCCs. AA and UA have most certainly lost the most share considering mergers.
We can argue about the details if you wish but aid to the industry during covid has been most needed by AA and UA who have less access to private capital markets and a smaller unencumbered asset base than other carriers.
Talking about foreign aid because AA is most in need of it now is an affront to carriers that figured out how to run their businesses in a competitive era long before covid and will ultimately lead to poorer financial results for everyone and fewer benefits for consumers.
Tim, the size of twa or pan am or Northwest at deregulation doesn’t matter to today, at all.
To anyone.. it literally has nothing to do with today. measuring bankrupt Airlines’s size from 40 years ago to measure today’s airlines is absurd and you know that. Stop digging holes for yourself and admit when you say something dumb.
The industry aid was needed by everyone. Delta’s so called $10b unencumbered base of 20+ year old 757s has nothing to do with any really market value worth $10B but you know that and just hope no one calls you out on it. Delta ended 3Q with as much debt as American. Let’s see how 4q plays out.
And the irony isn’t lost on anyone: you’re all for “foreign” foreign ownership laws to be relaxed since that seems to be the only way delta can get international partners, but against US foreign ownership laws being relaxed. Noted.
For the record, I don’t think relaxing US foreign ownership laws is a great idea, but I’m also not the one having to defend Delta’s entire international equity stake strategy in the same breath.
Has this guy had his head buried in the sand for the last year? The pandemic has highlighted the importance of national security. Keep the US airline assets under US control.
Other than being able to get access to foreign money, I am really struggling to understand how opening up US airlines to foreign ownership is going to be a positive for American workers.
Then again, Biden is destroying thousands of construction jobs today by canceling the Keystone Pipeline, so why not gut the airlines while he’s at? They both are anti?Green New Deal entities.
Keystone XL is a long-term disaster & that is why Biden is canceling it for the final time – jobs be dammed.
Yeah… nothing says green like thousands of trucks on the road…
No Way should a foreign airline own any part of an american airline leave it to stock market to ? think that up what about a war they only think of . money tricky guy u had writing article. Bg
Follow the money here. Cranky Concierge is failing miserably. Cranky has gone full blown leftist looney. Readers and page clicks have disappeared as a result. Cranky needs cash. Cranky gets paid buy a guy trying to sell Clear, a book, and self promotion.
I remember the good ol’ days when we talked to each other face-to-face and were civil when we disagreed. No hiding behind the anonymity of a 1st name in a comments section on a blog. No devolution into “righty/lefty looney” aspersions to attack someone’s moral character and/or to dismiss their intellectual competence merely because of disagreement over an idea. The assumption of good will in other people was the norm, instead of a search for conspiracy. Politeness and kindness were virtues. Those were good days.
Horrific idea. Turn another US company into a globally controlled outfit. No thank you.
Globalist dribble leaking from the mouth of a hopeful stock short seller attempting to shove a bad idea onto an industry to profit on the misery of thousands.
Please google Civil Reserve Air Fleet (CRAF). Been in existence since 1951. A voluntary program in which US airlines are asked to commit capacity to Defense to be called up in time of national need–military capacity is strained or becoming overwhelmed.
What you say would be OK if foreign ownership, or investment, would not affect Defense’s ability to get the capacity when needed. CRAF is voluntary and not all US-owned airline are willing to commit capacity, so Defense has to offer incentives, like seeing that participants get priority dibs on Defense peacetime lift.
Of course, history has shown that not all US-owned airlines are USA, USA, etc. If they believe they can make more money in global, non-Defense markets, they will (shock, shock) do it! And, some foreign-owed airlines, as I understand it, have been very, very helpful in offering to meet our needs.
Allowing foreign ownership of, investment in any US airline, 100%, even 1% is very risky, and Congress, my guess, would never approve it.
Isn’t national ownership of airlines set out in the Chicago Convention? And that the formation of trans national airlines might affect overflight rights and Air Service Agreements?
Wow! The comments in response to this op-ed illustrate all that’s wrong with civil discourse today: personal attacks on the author, intentional mis-reading of the piece, and pivots into totally unrelated topics. Very few comments respond civilly and thoughtfully. The author presents a legitimate idea worthy of discussion and debate, is upfront about where the pitfalls lie and acknowledges protective guardrails will be required. If you disagree, great, but do so with policy and factual support, not speculation about the author’s motives. I, for one, agree the idea should be explored. Doing so would allow the supporting and opposing economics to be examined carefully, along with shining a light on the labor and national security issues that should guide the analysis and decision process. The author suggests these issues can be addressed. Maybe they can and maybe they can’t, but we won’t know unless a civil and thorough debate and analysis occurs. Simply because the idea has been too difficult to advance in the past does not mean it should not be considered now in light of the very different circumstances we all operate in today.
Yeah, this definitely seems to have functioned as some troll bait! I’d tend to disagree with the post, as I’ve yet to see a free trade agreement that adequately addresses the fact that free movement of labor is not as easy as capitol, but I’m a bit disheartened by some of the comments that are a skip and a jump from out & out xenophobia/anti-Semitism.
Cranky, have you thought about moderating comments a bit more? I know I could always just not look at them, but I used to come here for the incisive comments as well as posts.
Dan – Yes, and I just mentioned that in a reply on a different post. I’m increasingly concerned about the comment section and am going to begin taking more action to clean things up.
Appreciate the response! Glad to hear you are looking into it.
As someone who works closely with my airline’s pilot union, they would just look at each other and laugh if this idea was ever brought up to them.