The bailout request by US airlines has been approved. About half the bailout ($25 billion) is in the form of loans.

But why is the bailout in the form of loans? This kind of bailout fails to punish management and owners for failing to keep adequate rainy-day funds. Giving loans as bailout seems to reduce the incentive for keeping rainy-day funds because owners and management would come to count on the government for such bailouts in the future. If instead, the bailout takes the form of equity injections, the owners would see their ownership stake in the airlines diluted, which gives them an incentive to be prudent in order to avoid bailouts. With equity injections, airlines get the cash they need to pay employees, and owners get punished for being imprudent.

Bailouts in other countries such as Singapore have taken the form of equity injections (issuance of shares) and/or the issuance of convertible bonds. What's so special about US airlines?

  • 1
    I mean, that is the way the bill is written. But I'm sure you're asking for the reasoning behind this, not the actual text of the bill itself.
    – user29681
    Commented Mar 31, 2020 at 1:39

2 Answers 2


While I can't give a definitive answer (not being able to read the minds of US legislators), I can suggest several factors that are at work.

First, there's a difference between "adequate rainy-day funds" and being prepared for a 40 days and 40 nights (and perhaps longer) deluge.

Second, the airlines' lack of business isn't due to mismanagement on their part, but to restrictions imposed on them by the government. (In addition to less actual demand.)

After those, you have to consider the attitudes of the average US taxpayer. Simply giving money to companies is pretty much unacceptable, as is having the government own any significant fraction of private businesses. Loans are only marginally acceptable: consider the protests over taxpayer bailouts during the '08 financial crisis. But a loan that can reasonably be expected to be repaid is still going to be far easier to justify to the voting public than an outright gift.

  • Isn't it imprudent for management to keep so little rainy-day funds that they can't even survive a month? Prudent people have at least a few months of rainy-day savings. Not sure why airlines are different.
    – Flux
    Commented Mar 31, 2020 at 1:36
  • 3
    @Flux The airline industry operates on razor-thin margins. It's why a single plane crash can doom an airline, as a result of reduced passenger bookings.
    – nick012000
    Commented Mar 31, 2020 at 3:00
  • good answer, but I would stress more how opposed much of the US citizenship is to goverment owning part of private business, to better demonstrate why that option isn't used even in cases in the past where the OP argument about the need airlines failure to kept better rainy-day funds and/or need for better management was more relevant to the cause of the crises.
    – dsollen
    Commented Mar 31, 2020 at 18:31
  • @Flux: Because there was no reasonable expectation that the airlines would basically be shut down for a month - and probably quite a bit longer. You also might find it instructive to consider the number of Americans who DO live paycheck to paycheck. (It's between 50% and 80% of workers, per Google.)
    – jamesqf
    Commented Mar 31, 2020 at 18:50

Based on remarks made by Trump during a task force briefing, he seems to think that by loaning the airlines money, he is giving the government a share in the airline industries (emphasis mine):

With that being said, we have to keep our airlines going. And we’re going to be using some — now, maybe we’ll take a piece of the airlines for the country, for our country; where we loan money and we take a piece.

How true that is (as far as how much of a share the government would get), I'm not really sure. But that is President Trump's public statements on it.

Also worth noting, Trump doesn't seem to think financial losses related to covid-19 is their fault, so bailing them out is okay:

As far as the airlines are concerned, the airlines — we’re going to back the airlines 100 percent. It’s not their fault. It’s nobody’s fault, unless you go to the original source. But it’s nobody’s fault. And we’re going to be in a position to help the airlines very much. We’ve told the airlines we’re going to help them.

  • "loan money and we take a piece" seems unlikely because the loans are unsecured loans and not convertible bonds.
    – Flux
    Commented Mar 31, 2020 at 2:03
  • Yeah, agreed. I'm just quoting what Trump said.
    – user29681
    Commented Mar 31, 2020 at 2:04
  • @Flux: But perhaps Trump is going on his own past experience (see e.g. Deustche Bank), and not what is legal and/or normal business practice?
    – jamesqf
    Commented Mar 31, 2020 at 18:53

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