Why are US airlines being bailed out using loans instead of equity injections?

Question

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?

Answer 1

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.

Answer 2

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.