Bailouts, Buybacks, and Blame in the Time of COVID-19

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In light of the recent Coronavirus pandemic, governments around the world have been forced to bailout companies to prop up their respective economies. Billions of dollars have gone into these relief packages, but who gets the money is up to debate. People have been outraged at the recent events, noting that the companies receiving the money from these programs may not be deserving of such capital. Pertinent examples include Harvard, which has a $41 billion endowment, taking almost $9 million from these relief packages, which could have gone to help out small businesses around the country.

When it comes to financial support in these times, companies have two options: the relief fund or a corporate rainy-day fund created by the company. The problem most consumers have is that many corporations don’t have these emergency rainy day funds so they don’t exist. Historically, public traded companies have spent surplus cash on buybacks. Buybacks are when companies buy large amounts of shares, thereby artificially increasing their EPS (earnings per share) and theoretically driving up their share price. This benefits the company and executive-level employees since they get paid in stock. However, the average worker on the company’s payroll, experiences no benefits and instead are hurt. This is especially concentrated in the airlines sector since most of their employees have been been furloughed or made reductant due to demand drying up because of travel restrictions.

The lack of a rainy day fund has been a problem for airline employees. With massive job losses due to the pandemic, the airline fails its employees in two periods: pre-pandemic and during the pandemic. Before the pandemic, airlines did not have the best working conditions. There were long hours and small pay for those serving in the planes and on the ground. By using the profits for buybacks instead of salary raises, the travel companies have pleased investors but failed its employees. During the pandemic, airlines are one of the hardest-hit industries. So many people are losing their jobs due to the airline’s questionable financial decisions and not receiving any money in compensation. As such, many people advocate for the bailouts to go other, more worthy causes.

However, the alternative to not giving the airlines bailouts is arguably worse. According to the FAA, the airline industry accounts for almost 5% of the US GDP and the hospitality sector provide 7% of all the jobs in the economy. Without these bailouts, the industry would undoubtedly fail and the economy would see a larger crash that it has already. The US has already lost more than 20 million jobs during the pandemic, and even a small hit to the airline industry could cause massive consequences. Though the morality of the situation is in question, there is no denying the economic need to keep these industries propped up. On the other hand, investment has been taken by the airlines which could have ended up going to small businesses instead. Small businesses contribute 45% of national output, and they are hit especially hard by the pandemic. They are also a huge part of the economy. So, the question remains: do these big business deserve their bailouts?


References

  1. https://www.ft.com/content/fb8ef5a9-2e42-4b6a-acd0-078a1faa0d01
  2. https://www.bea.gov/data/gdp
  3. https://www.economist.com/britain/2020/04/30/the-government-ponders-bailing-out-universities

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