coronavirus

White House Grapples With Which Industries to Save as Coronavirus Cripples Economy

The airline industry is likely to draw the most bipartisan support

President Donald Trump listens to Vice President Mike Pence
AP Photo/Evan Vucci

The Trump administration is grappling with which industries to bail out as thousands of businesses in the U.S. grind to a halt amid severe measures to curb the spread of the deadly coronavirus.

The U.S. could lose 8.2 million international visitors this year. That’s more than the country lost in the two years after 9/11. That’s lost revenue not only for airlines and hotels, but also for restaurants, retailers and airports. In some states, malls, gyms and movie theaters are shuttering and officials are telling restaurants to offer only takeout options.

"I don’t see how we get through this without wide-scale systemic solutions," said one top-tier investor. "We’re going to have to rewrite the rules to get to the other side."

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If the White House has its way, those solutions will include financial aid to the airline, cruise, and hospitality industries, Treasury Secretary Steven Mnuchin confirmed this weekend. The administration has already begun putting together packages for industries it wants to support, people familiar with the matter tell CNBC. The U.S. airline industry confirmed Monday that it is seeking government assistance of more than $50 billion, including a mix of direct aid and loan guarantees.

Other measures to confront the economic meltdown may include stimulus options for both companies and individuals, like a payroll tax cut, which President Donald Trump has pushed for, despite an inability to gain bipartisan support. Enhanced small-business loans through the Small Business Administration and more support to states and individuals battling the crisis are also on the table. 

Senate Minority Leader Chuck Schumer is planning his own aid proposal of at least $750 billion. It would include forbearance on federal loans, a moratorium on evictions and foreclosures, assistance for small businesses and emergency child care.

Election-year issues

But while the high-stakes game of choosing how to support the U.S. economy is a difficult decision in any year, the added task of doing so in an election year makes it particularly thorny.

″[The question is], why should people at the top be bailed out when people at the bottom are struggling. And how are you picking winners and losers," said professor Matt Dallek, a political historian at George Washington University. 

As winners go, the airline industry is likely to draw the most bipartisan support, as the sector is critical to the U.S. economy. It employs 750,000 people and allows travel throughout the nation, including local hubs. Its fall would crush confidence in the U.S. economy.

It also has politicians on both sides of the aisle who have traditionally supported the industry. Democrat Sen. Amy Klobuchar hails from Minnesota, home to Delta’s hub at Minneapolis-St. Paul International Airport. Missouri’s Sen. Roy Blunt, a Republican, helped draft the legislation that saved the airline industry in the fallout of the 9/11 attacks. 

Still, the industry has angered some lawmakers and consumers as it has cut legroom and added myriad fees to increase profits. The biggest players have also consolidated their grip through a decade of mergers. U.S. airlines last year reported their 10th straight year in the black, a departure from the boom-and-bust cycles that plagued the sector for decades. Their balance sheets are much stronger than the debt-saddled ones during previous crises, analysts have noted.

Any offer to aid the industry as individuals suffer is likely to bring those complaints back to the forefront.

"They have money in the bank, they’re secure," said Alvin Lewis, owner of Alvin’s Limousine Services. Lewis runs a car service in Austin, Texas. His business was hit hard when South by Southwest canceled its annual festival and conference there. 

"For me, I’m a small-business owner. In the last four weeks, I haven’t made any money at all. I had 300 cancellations for this month and I’m stuck right now – I can’t make the payment on my cars, my bills are piling up - I’m out of business it looks like."

Lewis’ perception conflicts with that of the airlines’ assessment of their current woes, but it highlights the difficult line politicians must walk in order to manage the crisis in an election year.

Both parties have said they will push to support small businesses in further aid packages. 

Don’t call it a bailout

Even if there is the broadest political support for an airline bailout, the government is unlikely to offer it without concessions. 

Lawmakers and lobbyists frequently compare any aid to the airline industry to that which the government offered after the Sept. 11, 2001, attacks. In both cases, they contend, the challenges facing the industry are not of its own doing.

But there’s an aversion to using the word "bailout," and there may be good reason. Former President Barack Obama’s bailout of the struggling auto industry in 2008 imposed emission caps and the forced resignation of General Motors then CEO. Shareholders were wiped out.

But even the deal to save the airline industry after 9/11 had caveats. The package, which totaled $5 billion in direct grants and $10 billion in loan guarantees, came with requirements that chief executives cap their salaries at $300,000. Several airline CEOs and other executives including those at Delta, UnitedSouthwest and JetBlue in recent weeks agreed to either temporarily forgo their salaries or take pay cuts. 

Controversially, though, it did not include aid for airline workers, an oversight Democrats have made clear they will not allow again. 

"Any deal to support these industries must focus on workers, who drive the success of any organization, and support working families who are most vulnerable to the economic consequences of coronavirus," said Sen. Sherrod Brown, D-Ohio.

Difficult choices

The cruise and hotel industries, meantime, are likely to be more politically contentious.

Many cruise lines are not incorporated in the U.S. Carnival is incorporated in Panama and Royal Caribbean is incorporated in the Republic of Liberia. They also employ many foreign workers on their ships, and have long been scrutinized by Congress for what some have alleged are unsafe conditions on board.

Unlike the airline industry, which has a huge national footprint with hubs throughout the country and smaller communities dependent upon service, there are only so many U.S. ports. That means any political support is also limited. Meanwhile, the hotel industry is not limited to a handful of key players, as with the airlines and cruise operators. And any decision to rescue the hospitality industry is complicated by the fact that Trump himself owns a hotel chain.

"It is easy to identify an airline," said Kent Smetters, director of the Penn Wharton Budget Model. "But, exactly what do we mean by a hotel that is hit hard? Would my personal Airbnb not count if I had a lot of cancellations. I could see these targets being litigated and funds being dispersed well after science has figured out a solution."

And even if the government aids the airline, cruise and hotel industries, it remains unclear how quickly it will take each to ramp up back to capacity. Until they do, there will be less demand for airplane parts, food services and hotel sheets. The economic impact is likely to ripple far and wide. 

"Unlike in 2008, unlike 2001 – there is not one or two particular industries we are talking about, and the economic pain that we as a society are going to face is widespread," said George Washington’s Dallek.

"Because if you bail out the travel industries -- well, what about the restaurants and bars that are going to go under? What about the taxi drivers and Uber and Lyft drivers? What about other people who are being laid off in other industries that are threatened."

This story first appeared on CNBC.com. More from CNBC:

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