Provide stimulus for small businesses, not $50 billion bailout for airlines

U.S. airlines are requesting $50 billion of taxpayer money for another bailout. We should not make the same mistake twice.

When Congress bailed out the airlines after the 9/11 attacks, two primary justifications supported this position.

First, the U.S. aviation industry argued that the attacks were unforeseeable and, therefore, it would be unfair to suffer the resulting economic consequences.

Second, the U.S. aviation industry argued it faced a unique burden resulting from the FAA's grounding of all airplanes for several days. This legal argument asserted that the federal government violated the Fifth Amendment by “taking” the airlines' opportunity to operate through regulation.

These arguments were flawed then. They are equally flawed today. The first argument is easily refuted. Anyone who has ever read (or watched) Michael Crichton's “The Andromeda Strain,” Stephen King's “The Stand” or Max Brooks' “World War Z” knows a pandemic is distinctly possible. The second argument fails the “smell test” in that all companies are facing severe economic consequences. Equally damning is that the federal government allocated $15 billion in expenditures and loan guarantees when the industry's own numbers estimated a loss of only $1.2 billion.

After the 9/11 bailout — and federal assistance during the Great Recession — the largest U.S. airlines spent 96% of their free cash flow buying back their own shares during the past decade. These buybacks created paper profits that were great for Wall Street but not for Main Street.

Stock-based executive compensation soared while salaried employees did not receive a similar leap in salary or benefits. Cash reserves and upgraded service for infrequent fliers were neglected to spit out dividends. The average U.S. taxpaying passenger bought millions of first-class tickets only to be given seats next to the bathroom.

Another airline bailout would be unwise. Instead, we need a stimulus package that lives up to a uniformly made statement across Congress: small businesses are the engine of the economy.

Every Member of Congress proclaims this point because small businesses operate in every industry, are owned and operated by a more diverse group of people and have greater impacts on their local economies.

The facts and rhetoric are proven correct by the statistics. Small businesses have done a better job of job creation in this century by accounting for 65% of all net new jobs from 2000-2018. Unfortunately, less laudatory facts also support focusing financial assistance efforts on small businesses in that they need help paying their employees and vendors even in good times. According to one study:

• 65% of small business had to “move money around” in order to make payroll;

• 61% of small businesses struggle with cash flow — with nearly one-third failing to pay vendors, loans, employees or owners due to cash flow issues;

• 43% of small business owners were frequently at risk of not being able to pay their employees on payday; and

• 32% of small business owners have paid their employees late when they believe cash on hand may not exist on payday.

A growing number of small business owners will be forced to choose between saving their companies or placing their families' financial condition at risk, whereas major U.S. airline CEOs will never face this professional and personal dilemma. In fact, the CEOs of major U.S. airlines could provide a significant number of small businesses and their employees with adequate liquidity with the amount they earn in a single month.

It is important to note that the diversity of small business owners goes beyond the spectrum of 8 million minority-owned firms and 9.9 million women-owned firms operating across the U. S. Voting diversity exists, too. Seventy-seven percent of small business owners identify themselves as independent voters who do not vote a straight party ticket. Whoever wins over these voters is the key to any federal election.

Congress and the president have the opportunity to craft a stimulus package that makes both financial and political sense. If they cannot deliver, then they will also be looking for jobs in a tough economic climate.

• David Seidman is a principal at the law firm Fischel | Kahn and serves as a board member with the Business Executives Association of Chicago. He practiced international transportation law from 1999-2002 in Washington, DC.