The Trump administration is negotiating a $500 million bailout for Spirit Airlines Inc (OTC:FLYYQ) to keep the struggling carrier from collapsing. Trump has publicly backed the intervention, framing it as a matter of saving thousands of jobs.
Marc Scribner, Senior Transportation Policy Analyst at Reason Foundation, in an exclusive interview with Benzinga, explained why the government shouldn’t bail out Spirit or other airlines with public funds.
Who Should Pay For Spirit’s Rescue?
Scribner argued that Spirit’s financial risks should fall on its own shareholders and lenders, not taxpayers, especially given the airline’s slim odds of recovery.
Calling it a “bad investment,” Scribner said that a government loan, or in the worst case, government ownership, just transfers the risks associated with the beleaguered airlines to taxpayers. “What is the benefit of perpetuating a financial zombie like Spirit Airlines?” he questioned.
He added that, as the chronic losses at Amtrak and the U.S. Postal Service demonstrate, the government has a poor track record of running commercial operations. The policy analyst also emphasized that the entire ultra-low-cost carrier segment is “pro-competitive” and government involvement would undercut competition.
However, Trump argued the government would acquire Spirit nearly debt-free and could eventually sell it at a profit once oil prices fall.
Bailout Talks Divide Washington
Spirit, in its second bankruptcy in under a year, has been pushed to the brink of liquidation by rising costs and soaring fuel prices, particularly amid the U.S.-Iran conflict. In 2023, JetBlue Airways (NASDAQ:JBLU) had agreed to acquire Spirit, but the proposed deal fell through amid pressure from the Biden Administration.
According to CBS News, Trump’s proposal could potentially invoke the Defense Production Act, typically used to mobilize industries for national security, which also grants the government authority to extend loans to private companies.
While Spirit Airway’s CEO, Dave Davis, welcomed the potential bailout, citing job protection and affordable fares for travelers, the opposition to Trump’s proposal has been louder.
Sen. Elizabeth Warren (D-Mass.) called for accountability from the executives who ran the airline into the ground. Meanwhile, Trump’s own Transportation Secretary Sean Duffy expressed doubts, saying he didn’t want to “put good money after bad.”
More Choice, Lower Prices
Scribner suggested that the government should focus on opening up competition. According to him, the FAA’s slot system, created in 1969 to manage airport congestion, heavily favors established carriers through “historic slots,” effectively locking out competitors.
“An even more market-oriented mechanism to mitigate congestion and promote airline competition would be to replace slots with runway congestion pricing,” said Scribner.
Current U.S. law effectively bans foreign airlines from flying domestic routes or cabotage, with only rare emergency exceptions. The Senior Policy Analyst pointed out that by contrast, the EU liberalized its internal air travel market in the early 1990s, and within two decades, comparable European fares were significantly cheaper than American ones, even accounting for higher taxes.
Scribner argues that for travelers, opening U.S. skies to foreign competition would mean “more flights to choose from and lower prices.”
Photo: Shutterstock
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