Is propping up airlines the right thing to do after Covid 19?

The international shutdown of airlines as a result of Covid 19 is causing havoc with the viability of the business model of airlines. Reports of the scale of rescue plans needed to keep these businesses in operation abound, Airlines for America representing the five largest in the US has asked for over $50bn, Virgin Atlantic £500m.

Already, some commentators have questioned how much support should be provided for airlines and whether the lessons of the global financial crisis bailouts have been learnt? I have previously written about the levels of government borrowing which will arise from the expenditure on Covid 19 by governments, the question of how this debt will be repaid and the impact on expenditure to reduce emissions.

The queue of business sectors asking for bailouts is lengthening as the recession deepens and lockdown reduces economic activity. Any bailouts will add to the level of government debt and the cost of both financing this and repaying it.

The question that needs to be asked as the economy recovers from Covid 19 is what sort of economy should it become? Should we revert to business as usual or adopt a different approach? If governments take climate change seriously, and the emission reductions required, then their expenditure to reboot the economy should be consistent with this policy aim.

Bailing out airlines to either maintain or expand current levels of flying is clearly inconsistent with emission reduction. The difficult policy question to answer is what is the right level of flying, to achieve emission reductions and what are the measures needed to achieve this?

In addition, the major aircraft manufacturers – Airbus, Boeing and Comac – will also be affected. The order books of these businesses will fall, if airlines fly fewer flights due to financial measures which are introduced to reduce flying. Some businesses in the supply chain will be directly affected, as for instance some engine manufacturers are paid based on the miles flown by their engines.

This poses real policy challenges, the environment against existing jobs (Airbus employs over 130,000 people, BA 45,000, US passenger and cargo airlines 750,000). How steadfast will governments be in prioritising emission reduction where the consequence is job losses in carbon sector jobs such as aviation? That will show how serious governments are about emission reduction.

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