We know that President Trump is working on a plan for the government to bail out Spirit Airlines. The airline hasn’t turned a profit in seven years, and is continuing to hemorrhage money. The idea is to give the airline a $500 million loan, and for that to eventually give the government a 90% stake in the airline.
But what’s actually the legal mechanism by which Trump wants this deal to happen? We’re now learning more details about what this will look like…
Trump to use Defense Production Act to buy Spirit
It’s now being reported that the Trump administration’s plan to bail out Spirit Airlines could be done using the Defense Production Act. That’s an emergency power that’s typically used to compel private sector companies to prioritize government contracts and increase supplies of critical goods. This also includes providing loan authority to private firms for national defense.
The idea is that the government would lend Spirit $500 million at a reasonable interest rate, and the government would then become the top debtor in the bankruptcy pecking order. The loan would be protected by Spirit assets, which would reportedly exceed the government’s costs, and would provide taxpayers with a warrant, with the right to own 90% of the company after it emerges from bankruptcty.
The Pentagon would also potentially use Spirit’s excess capacity for transporting troops and military cargo, with the goal of selling the airline to another carrier in the long run.
There’s not a whole lot that makes any sense here
On the one hand, I’m sort of delighted to see some conservatives now embracing socialism, so I guess that’s the upside here. 😉 But let’s be clear about how this is likely to play out:
- $500 million will last Spirit a matter of months based on its current burn rate, at which point the government will own 90% of the airline
- The government will then own 90% of an airline running huge operating losses, and Trump somehow thinks that other airlines will be interested in buying it, even though the interest hasn’t been there up until now
- If the government starts turning Spirit into a big government contract airline, then that also seems rather unfair; so the key to getting lucrative government contracts is to be days from liquidation after having a failed business model for many years?
I’m not sure if Trump just doesn’t understand the airline industry, if he can’t keep his narrative straight, or what. Because he contradicts himself with this Spirit deal even just sentences apart. For example, he saiD:
“I think we just buy it. We’d be getting it virtually debt-free. They have some good aircraft, good assets — and when the price of oil goes down, we’ll sell it for a profit. I’d love to be able to save those jobs… I like having a lot of airlines so it’s competitive.”
He says the government will sell Spirit at a profit to another airline, and then in the next sentence he says he likes having lots of airlines so the industry is competitive? Is that logic tracking for anyone?
Then again, it’s not even the most bizarre thing he said about Spirit. The prize for that has to go to his claim that Obama (president from 2008 to 2016) decided it was a bad idea for Spirit and People Express to merge (People Express went out of business in 1987).
Bottom line
President Trump reportedly wants to buy Spirit Airlines under the Defense Production Act, an emergency power typically used during times of war. The idea is that the government would loan Spirit $500 million, and that would ultimately give the government a 90% stake in the airline, as its top debtor.
Trump then wants to turn around and sell the airline at a profit, even though the interest hasn’t been there up until this point…
What do you make of Trump trying to use the Defense Production Act to make this deal happen?
