What is the Price of a Golden Parachute?

Fewer than ninety days after after receiving fifty billion dollars from the collective pockets of the United States taxpayers, airline companies are now predicting massive layoffs in September.  Moreover, prior to receiving that fifty billion dollar gift, airlines had already begun to layoff and furlough employees, most of whom have not been recalled subsequent to the bailout.  From the pockets of many into the pockets of the few.  Timing is everything.  Too big to fail.  It’s a familiar refrain.  Will we ever learn from our mistakes?  Does one president’s administration learn from a prior administration?

Before getting righteous, let’s first acknowledge a fundamental trait of human nature. It is damn hard to delay gratification. Greed is a powerful motivator, and it takes almost super powers in these uncertain times to deny the ego the immediate pleasures we reap from greed.  Especially when the harvest is money.

Who among us is capable of saying no when that plate of warm chocolate-chip cookies is placed before us at a party (those gatherings of people, usually in an interior space, where you were allowed to stand closer than six feet apart)? Especially if the cookies are fresh out of the oven, the chips are still gooey and the dough moist and crumbly. Who among us can resist the temptation to scarf down the majority of cookies on that plate, the rest of the party-goers be damned? Sometimes it pays to hang out near the kitchen.

Remember those psychology experiments we read about in college back when there was hope? Those experiments where Billy the kid was given a choice. Which would Billy prefer: one yummy chocolate chip cookie now, or two yummy cookies in five minutes. The correct answer, of course, is that Billy is supposed to delay gratification for five minutes, hope against hope that COVID doesn’t strike him dead in that five minute interval, and relish his two cookies later in in the day. In fact Billy got bonus points if he placed the second cookie in a bag and brought it home for his sister. That Billy was mythical; he was probably mugged by his cousin before making it home. However, there always was a correct answer.

OK, we all knew that. But what you might not know is that several follow up studies showed a strong correlation between those subjects who just went for that first cookie and becoming a republican twenty years later. Well we all intuited that. But what was even more interesting were the results of one particular study. You see there were not just two possible outcomes. There was a third. The third outcome was rare, but not unheard of. Because kids who figured out the third outcome really hit the jackpot. Of course, these go-getters went for the first cookie. But then energized by their sugar high, they  would go into the kitchen while the experiment administrators were tabulating results.  Where, left unsupervised, that group of wily coyotes would stuff their faces with way more cookies than the experimenters could count.

And what career path did such opportunistic behavior suggest? An airline executive. That’s what. 

Now let’s get righteous.

In April, I reported on the CARES Act. In that article (click here), I used my trusty calculator to compute that based on the fifty billion dollar loan to the airlines, given the number of employees in the airline industry, each employee could receive $113,000 from the bailout, if the money were evenly distributed among all employees. And then I predicted that there would be no way that Jim, the baggage handler, would see his fair share of his $113,000.

And I was right.

Just this week, stories started popping up about how the beleaguered airlines might have to lay off employees starting in September. Wow! The ink is barely dry on the legislation and already it is loophole time, screw the spirit of the law. Hmm, what was the spirit?

Which gets to a very interesting legal point about how that fifty billion dollars was given to the airlines. Choices were made. Think back to the bailout of the banking industry and the automotive industry under Obama. Recipients of those funds had to give stock to the government in exchange for its infusion of capital. As a shareholder, the government had a right to examine each company’s books and records, a right to govern, maybe a seat or two on the board of directors, a say in how management ran the business. All of which seemed fair and appropriate considering the government just saved those companies from bankruptcy. All of those provisions were designed to ensure the that the money the government gave those companies was not misspent. That those companies were accountable for the funds they received. As those companies should have been, because, in the long run, those bail-out dollars were your tax dollars. If you gave $10,000 to your nephew for college tuition, wouldn’t you want to see his report card?  But those were the days of Camelot.

Today we have Trump. The government got no stock in exchange for the fifty billion dollars it forked over to the airlines. No visibility as to how the money will be used. Guidelines and regulations for sure. But visibility, transparency, accountability – who is kidding whom?

So, as I predicted, Jim, the baggage handler, will not see much of the $113,000 earmarked for him. Because Jim will be laid off. Maybe 1/3 of airline employees will not be receiving the company issued turkey this Thanksgiving. That’s what the airlines now predict.

Let’s do a little more math. If the bailout entitled each worker to $113,000 assuming a full slate of workers, now with a 1/3 reduction of workers, each remaining employee’s share of the bailout increases to $166,000.

Don’t you see the beauty of this approach by our U.S. airline executives? By laying off 33% of their employees, the executives can now give themselves almost a 50% percent raise (aren’t statistics fun?). And they unquestionably deserve such a raise, because the remaining employees will now be increasing their workloads by 50% as they assume the tasks that were performed by the departing workers for their non-existent passengers. Talk about grabbing the cookie now and then stealing four cookies later.

Or what about this scenario? Perhaps the future of the airlines industry doesn’t look so rosy right now. Even when COVID goes away, will airline revenue fully recover? Will you fly on an airplane that has middle seats? Good-bye middle seat, good-bye revenue.  Perhaps it is better to bail now while the bailing is good. What the hell, the industry just got fifty billion dollars, no strings attached, from the Trump administration. Billy has worked twenty years for American Airlines. Isn’t now a good time for Billy to get to know his spouse and kids? Who could argue with that?  It is time for just desserts.  Jump, Billy, jump.

I hear the airlines have just purchased lots of golden parachutes for executives who want to jump plane.  And when you land Billy, don’t worry about cleaning up after yourself.  Jim will take care of that.  I hear he is available for a song.

Copyright 2020. Peter Kelman. All rights reserved.