Re­cently as­cen­dant firms swell queue for tax­payer aid

The Washington Post - - FRONT PAGE - BY JONATHAN O’CON­NELL

When air­line executives re­al­ized a few years ago that they could charge pas­sen­gers ex­tra fees for just about anything — meals, check­ing bags, even choos­ing seats — their businesses seemed bulletproo­f.

“I don’t think we’re ever go­ing to lose money again,” Amer­i­can Airlines chief ex­ec­u­tive Doug Parker told giddy investors in 2017. As such com­pa­nies con­tin­ued to thrive, they also un­der­took share buy­backs, boost­ing in­vestor value. Pres­i­dent Trump and con­gres­sional Repub­li­cans sweet­ened the out­look for big businesses fur­ther when they passed a $1.5 tril­lion tax cut that slashed the cor­po­rate rate be­gin­ning in 2018.

That seems so long ago. Now airlines, hotels, cruise lines, coal-min­ing com­pa­nies and oth­ers stran­gled by coro­n­avirus shut­downs are lin­ing up to re­ceive slices of a $2 tril­lion aid pack­age funded by tax­pay­ers.

Yet many of these com­pa­nies be­haved in ways be­fore the cur­rent eco­nomic cri­sis that are making a bailout tough to swal

low, la­bor ad­vo­cates and some econ­o­mists say.

The ho­tel gi­ant Hil­ton, for in­stance, an­nounced a $2 bil­lion stock buy­back on March 3, weeks af­ter coro­n­avirus cases be­gan af­fect­ing the in­dus­try. Cruise lines for years have avoided taxes and U.S. safety reg­u­la­tions by regis­ter­ing their ves­sels abroad. Coal com­pa­nies put some of their work­ers in harm’s way and are now ask­ing to get out of a tax that gen­er­ates money to com­pen­sate for­mer min­ers who have black lung dis­ease.

As Congress de­bated the de­tails of the bailout this week, law­mak­ers wres­tled with how far they should go to help an­other set of Amer­i­can cor­po­rate ti­tans two years af­ter tax re­form and less than a dozen years af­ter the bank and auto in­dus­try bailouts of the Great Re­ces­sion.

The choice is be­tween two op­tions un­sa­vory to many: bail out some of the country’s largest cor­po­ra­tions or watch as they put more peo­ple out of work.

Among those seek­ing as­sis­tance from a pot of at least $500 bil­lion in the res­cue pack­age are com­pa­nies em­ploy­ing hun­dreds of thou­sands of servers, flight at­ten­dants, house­keep­ers, jan­i­tors, se­cu­rity guards and other work­ers.

“You don’t want to re­ward com­pa­nies for do­ing short­sighted, short-term things the past 11 years. You don’t want to re­ward them for stock buy­backs and ex­ces­sive CEO com­pen­sa­tion,” said Greg Leroy, ex­ec­u­tive di­rec­tor of Good Jobs First, an ad­vo­cacy groups that tracks cor­po­rate subsidies. “The trou­ble is a lot of the com­pa­nies that are in trou­ble right now are the ones that have been do­ing that.”

Airlines and ho­tel chains have in re­cent years dra­mat­i­cally in­creased spend­ing on stock buy­backs (which can pump up a share price with­out build­ing anything or hir­ing any­one) and some­times gen­er­ous div­i­dends (pay­ments to share­hold­ers).

Trump ad­dressed such con­cerns Mon­day.

“I don’t want to give a bailout to a com­pany and then have some­body go out and use that money to buy back stock in the com­pany and raise the price and then get a bonus,” Trump said.

Cruise lines are also fac­ing po­ten­tial cash short­ages, but they are domi­ciled in Liberia, Panama and else­where to avoid nearly all U.S. taxes and safety reg­u­la­tions. Some health of­fi­cials say some cruise op­er­a­tors should have done more to stem trans­mis­sion of the virus among pas­sen­gers and crew mem­bers aboard their ships.

Coal-min­ing com­pa­nies also have asked for help, in­clud­ing a re­quest that the gov­ern­ment re­scind a $220 mil­lion tax in­crease to sup­port 25,700 dis­abled coal min­ers, many of whom have suf­fered from black lung dis­ease, and their de­pen­dents. The in­dus­try em­ploys about 51,000 min­ers in sur­face and un­der­ground mines, fed­eral data shows.

“You’ve prob­a­bly heard the crit­ics by now. How dare the coal in­dus­try ask for re­lief to weather the covid-19 cri­sis?” the Na­tional Min­ing As­so­ci­a­tion said Mon­day. “It’s the kind of ab­surd ques­tion or as­ser­tion we’ve come to ex­pect from peo­ple who . . . re­main com­pletely out of touch with the es­sen­tial role that coal plays in keep­ing the lights on, homes warm and in­dus­try churn­ing.”

Even Boe­ing, the aero­space man­u­fac­turer ac­cused of mis­lead­ing pi­lots and fed­eral safety in­spec­tors about lapses that led to two of its 737 Max jets to crash (killing 346 peo­ple), is poised to re­ceive a por­tion of a $17 bil­lion loan pro­gram des­ig­nated for businesses deemed “crit­i­cal to main­tain­ing na­tional se­cu­rity.”

With its 737 Max jets still grounded and the novel coro­n­avirus spread­ing among some of its own work­ers, Boe­ing may have to de­clare bank­ruptcy if it does not re­ceive a bailout, some an­a­lysts said. Crit­ics of the com­pany noted that even if it goes into bank­ruptcy, the com­pany could con­tinue op­er­at­ing and pay­ing em­ploy­ees.

But Boe­ing and its sub­sidiaries em­ploy 160,000 peo­ple world­wide. “We have to pro­tect Boe­ing,” Trump said last week.

‘I will be the over­sight’

It was not so long ago that Amer­i­cans were asked to bail out a dif­fer­ent set of com­pa­nies that ap­peared too big to fail. In 2008, the gov­ern­ment propped up big banks, the same in­sti­tu­tions that had driven the country into re­ces­sion, with the $700 bil­lion Trou­bled As­set Re­lief Pro­gram, or

TARP. Months later the gov­ern­ment be­gan spend­ing tens of bil­lions of dol­lars to help Gen­eral Motors and Chrysler stave off liq­ui­da­tion.

There are im­por­tant dif­fer­ences be­tween those pack­ages and the cur­rent one, which is much larger and mov­ing through Congress more quickly. Some econ­o­mists say the aid is likely to ben­e­fit work­ers only if it is closely tai­lored to en­sure the money won’t end up bail­ing out just firms’ stock prices.

Trump’s declar­ing “I will be the over­sight,” as he did Mon­day, didn’t make these ex­perts feel any bet­ter.

“In­dus­try res­cues are only worth do­ing if they’re a res­cue of pay­roll and wages,” said Josh Bivens, re­search di­rec­tor at the Eco­nomic Pol­icy In­sti­tute.

Top cor­po­ra­tions vowed to do bet­ter af­ter the last cri­sis. Last year, 181 top Amer­i­can chief executives pledged to re­de­fine the pur­pose of cor­po­ra­tions be­yond profit by sign­ing a pact that in­cludes prom­ises to sup­port em­ploy­ees and com­mu­ni­ties.

Per­haps no one could have pre­dicted the depth of the eco­nomic dev­as­ta­tion wrought by the novel coro­n­avirus. But some com­pa­nies — at the urg­ing of Wall Street — of­ten put share­hold­ers and executives first, some­times to the detri­ment of pre­par­ing for an­other down­turn, la­bor ad­vo­cates and some econ­o­mists said. Now they are in line for cash to pay their staffs as busi­ness has ground to a halt.

A year ago Arne Soren­son, chief ex­ec­u­tive of Mar­riott, the world’s largest ho­tel chain, an­nounced the com­pany would re­turn $11 bil­lion to share­hold­ers through buy­backs and div­i­dends by 2021. Its share price jumped 3 per­cent on the an­nounce­ment.

Now the com­pany has be­gun fur­lough­ing tens of thou­sands of em­ploy­ees, ef­fec­tively lay­ing them off but al­low­ing them to main­tain health ben­e­fits. Soren­son was among executives to meet with Trump, seek­ing a re­ported $150 mil­lion of di­rect aid to hotels. The com­pany has since sus­pended div­i­dend pay­ments, stopped share buy­backs and cut Soren­son’s salary for the re­main­der of the year.

Mar­riott spokes­woman Con­nie Kim said the coro­n­avirus clo­sures have cre­ated “sig­nif­i­cant drops in de­mand at properties glob­ally with an un­cer­tain du­ra­tion.” Mar­riott’s last div­i­dend pay­ment will be one an­nounced Feb. 14, she said, “un­til con­di­tions im­prove.” MGM Re­sorts, Delta Air Lines and other com­pa­nies have stopped div­i­dend pay­ments or buy­backs as well.

Hil­ton World­wide has pur­chased roughly 55 mil­lion shares since 2017 for $4.3 bil­lion, in­clud­ing the stock buy­back an­nounced March 3.

Hil­ton has 60,000 em­ploy­ees, and 200,000 more work at Hil­ton­branded hotels. Tens of thou­sands of those have been fur­loughed. The com­pany is­sued a state­ment to The Wash­ing­ton Post say­ing it is not seek­ing “di­rect fi­nan­cial sup­port” but is work­ing “to se­cure emer­gency re­lief for ho­tel work­ers that are em­ployed by thou­sands of small businesses that own hotels across the country.”

‘ Time is run­ning out’

Of all the in­dus­tries, airlines are con­sid­ered most likely to get money be­cause of their fun­da­men­tal role in the travel econ­omy and the qual­ity of their mostly union­ized jobs. The airlines are brac­ing for an es­ti­mated $113 bil­lion of losses, ac­cord­ing to the In­ter­na­tional Air Trans­port As­so­ci­a­tion, be­cause many are able to op­er­ate only half or fewer of their usual routes. As of Tues­day night, the Se­nate bill called for up to $50 bil­lion in aid specif­i­cally for the air­line in­dus­try.

But airlines have em­ployed many of the same prac­tices to boost their stocks. Amer­i­can Airlines, which has 130,000 em­ploy­ees, spent $13 bil­lion on buy­backs in the past decade. United, which em­ploys 100,000, has ap­proved $5 bil­lion of buy­backs since 2016.

Parker, the CEO of Amer­i­can Airlines, and Os­car Munoz, chief ex­ec­u­tive of United, joined nine other air­line executives in writ­ing to Congress on Satur­day say­ing that “time is run­ning out” for the in­dus­try.

Aside from the money pro­vided to share­hold­ers, Amer­i­can has also in­vested ag­gres­sively, spend­ing more than $30 bil­lion on cap­i­tal im­prove­ments, $23 bil­lion on planes and $20 bil­lion on in­creased wages and ben­e­fits for em­ploy­ees. In 2017, it gave pi­lots and flight at­ten­dants a mid-con­tract pay raise, an­ger­ing some Wall Street banks.

“We wish we didn’t need help to weather this cri­sis, but we are fighting for a life­line to help pro­tect our 130,000 team mem­bers and their jobs, and the vi­tal role avi­a­tion plays in the global econ­omy,” Amer­i­can spokes­woman Shan­non Gil­son said.

United sus­pended its share buy­back pro­gram last month and says it has in­vested $30 bil­lion in re­cent years in new planes and tech­nol­ogy, plus $3 bil­lion in wages, ben­e­fits and profit-shar­ing with work­ers. The com­pany says it can­not con­tinue to pay its em­ploy­ees with­out as­sis­tance if busi­ness con­tin­ues to crater.

“De­mand con­tin­ues to drop, and we’ve cut our sched­ules ac­cord­ingly,” spokesman Steven Res­tivo said. “We’re look­ing at a 60 per­cent sched­ule re­duc­tion in April — 42 per­cent do­mes­tic and 90 per­cent in­ter­na­tional. We ex­pect sim­i­lar re­duc­tions in May.”

Some cruise line executives say they are not seek­ing a “bailout.”

“We don’t need a bailout in terms of giv­ing us money. Get­ting a loan guar­an­tee would be help­ful,” Carnival chief ex­ec­u­tive Arnold Don­ald said re­cently on HBO.

“You don’t want to re­ward com­pa­nies for do­ing short­sighted, short-term things the past 11 years.” Greg Leroy, ex­ec­u­tive di­rec­tor of Good Jobs First, an ad­vo­cacy groups that tracks cor­po­rate subsidies

More at wash­ing­tonpost.com/ busi­ness

MICHAEL REYNOLDS/EPA-EFE/SHUTTERSTO­CK

Amer­i­can Airlines planes at Rea­gan Na­tional Air­port near Wash­ing­ton on Wed­nes­day. The vi­ral out­break is a cri­sis for airlines, with travel sharply down. “We are fighting for a life­line to help pro­tect our 130,000 team mem­bers and their jobs, and the vi­tal role avi­a­tion plays in the global econ­omy,” Amer­i­can spokes­woman Shan­non Gil­son said.

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