The need for systematic planning of the airline industry hits government as 50,000 face unemployment

Written by: John G. on 5 May 2020

The government has just thrown over a billion dollars at airline owners in a futile attempt to sustain the crumbling status quo in the Australian industry.

Qantas had suspended most staff and was on the edge of complete shutdown when the government announcement came. Virgin Australia suspended all operations in mid-April, 10,000 staff and another 6,000 or so contractor staff were grounded, after the government announced subsidies to airline operations.
At the end of April, 35,000 or so airline industry workers were not at work and staring down the barrel of mass sackings with others keeping skeleton services flying.  

The government and the opposition have both broadcast their commitment to an airline industry structure of at least two inter-capital airlines supplemented by a number of smaller regional airlines, currently about a dozen. They differ about how to ensure that. There is great anxiety among the workforce about what lies ahead. Government assurances count for little and measures to the end of April, while sizable, are temporary and merely financial, not structural. 

$715 million in government fees and charges have been waived, $298 million in subsidies to regional airlines and another $175 million is contracting Qantas and Virgin to keep flying a skeleton schedule on major routes and some overseas “rescue” flights.

In the era of staying at home and social distancing, with tourism banned and other travel severely limited, airlines have few passengers and little money coming in. Most planes are grounded. Qantas has 136 aircraft in its fleet. 100 were parked up in storage in early April. Virgin has 98 aircraft, 76 were in storage prior to all being grounded in the third week of April.  

The local airlines are not alone. On an international level, American Airlines had 415 of 921 aircraft parked up in early April. British Airways has 274 aircraft with 209 parked, Cathay Pacific with 152 aircraft 97 parked, China Southern 621 aircraft with 168 parked. It’s a huge international crisis clearing the skies where airlines are bleeding cash. 

The U.S. government announced $US25 billion to subsidise airline payrolls and operations. Major airlines will be paid a 70 per cent payroll subsidy that will not be repaid. Smaller airlines receiving $100 million or less will not need to repay anything. How many will exist at the end of this is yet to be seen.

Virgin pleaded for a $1.4 billion government guaranteed loan to keep it afloat. They have financial liabilities of $5.3 bn and a Moody’s credit rating of Caa1 “very high credit risk”, effectively junk bonds.

Virgin Australia’s board put the airline into administration in mid-April, after the government’s announcement, as servicing Virgin’s debt drove it towards insolvency.

In administration, Virgin will look to void its $1.8 bn of unsecured debt, and renegotiate aircraft leasing contracts down from their present $2.5 bn value, to lower debts as the owners look for new capital. The owners face compromises including financial restructuring with the current ownership very diluted or gone, with new money brought in. All the while, its 16,000 workers look on, knowing most of them will be stranded without a job.   

Financial support doesn’t end boom bust cycle

A feature of the airline industry, as in every industry, is that each company tries to keep ahead, introducing better and better aircraft, refine their booking systems, anything to give advantage over their competitors in the sale of seats and freight transport. 

The threat of losing market share through a competitor getting a technological edge or efficiency gain has become a compelling driver to get new aircraft, new work processes, improved IT systems, here and internationally.  Each airline is driven to maximise its capacity, expanding its means of transporting passengers and freight. The combined effect of this struggle for market share inevitably ends in overcapacity, too many seats, too many planes, etc. Qantas order cancellations over the last few years show its expectation of overcapacity prior to the Covid Crisis. 

The Government juggles intervention and lack of intervention, gambles with the elimination of Virgin, propping up Qantas while manoeuvring to avoid a monopoly on the major inter-capital routes, or complete collapse of both. Morrison and Frydenberg have held off directly supporting Virgin’s foreign government owners, holding out for others to buy in. The government acts on the present, shovelling money in to keep a few aircraft in the air, while passively leaving to the future their ideal of a distant mirage. They sit on their hands, while 16,000 people and their families see the trainwreck of joblessness hurtling towards them. 

Even ministers broadcast calls for government action to retain domestic airline services, and a two-airline policy, as the industry faces collapse. Government baulks at exposing the debt trap, built on value transfers to foreign owners, which has been triggered by the Covid crisis. 

The U.S. government also struggles against the building pressure towards government takeover of airlines. Those dynamics for structural change are clearly evident in the airline industry. Big players in this region such as Singapore Airlines, Emirates, Air India, Air New Zealand, Garuda Indonesia, Etihad are all government owned. Many others like Pan Am have disappeared. 

The trend towards government ownership reaches peaks in every economic crisis. 

International travel and domestic travel are among the first corporate and people’s “discretionary” spending to halt as credit dries up. Aircraft are grounded, cash flow disappears and debts mount, some only to be written off.  

Without air and ground crew, a fully fuelled airline stranded on the tarmac can’t make a zac, the planes can’t fly.

The workforce transforms lifeless assets into capital flying freight and passengers. The capitalist can only use assets as capital by paying people to work them. In the crisis there’s no money to be made, so assets go idle, as the workforce goes without. 

Organisation alongside chaos compels nationalisation
Every worker knows capitalism is a dog-eat-dog system where vicious competition finds its culmination in the emergence of winners. 

Organisation of each airline in their operations on one side, and disorganisation of airlines struggling for dominance on the other, is characteristic of large-scale capitalist production and exchange. It results in waste, squandering of assets and unemployment of the workforce. It compels efforts to end the desolation by organising the industry. Unplanned production crumbles in the face of the necessity for planned production. Industry planning and organisation become the watchwords. 

The need for systematic planning of the industry is smacking government in the face. Nothing else will bring a stop to repetitions of competitive races to overcapacity and destructive slumps. Nothing else will provide secure jobs and meet demands for travel and freight. Anything else will just repeat the cycle of pick-up, expansion, boom, and bust.

The last thing people want government money spent on is rescuing the airline’s foreign owners. The rescue needed is of the workforce and the flying public. Dump the foreign owners and take control not just of Virgin, but the industry, nationalising Qantas too. This crisis again shows the need for a stable and prosperous airline industry has outgrown private owners. It has got to the point they are just dragging it down.

Morrison tries to put off the day when the government, as representative of capital as a whole, is forced to not just regulate the conditions in which the industry operates, but to take over the direction of the industry itself. 

The course of this crisis and ongoing industry trends leave other options as futile engagements; wrestling to avoid confronting the recurrent boom-bust cycle of pick up, growth, profit, boom, overcapacity, bust, destructive sell-off, restructure, unemployment and misery. 

Industry serving the community needs even more
Even nationalisation under government control will not put the industry at the service of the people.

Nationalising the airline industry under the current government structures only reproduces the drive for profit and subjection of the workforce which staff experience in existing government enterprises like Australia Post or the NBN. The workforce remains labour set to work on aircraft and other means of production to accumulate capital for government as representative of the aggregate of capitalists. 

Teachers and public hospital workers know the necessity for endless struggle in their government owned industries. They have to continuously battle to protect themselves, for funds to allow needed services, and in efforts to turn their institutions to serve the community. They face constant government attacks on their efforts to look after education and healthcare for the community. 

Enterprises at the service of the community have to be governed by the community. Current government enterprises have none of that control by their staff and community. Nationalisation without ending monopoly capitalism’s grip on government is the least that will remove some aspects of the destructive processes currently causing the disruption and unemployment in the industry now.  

It is as if this government has some intuition of the dynamics towards state organisation of industry and exchange. They try to stand in the way of resolving the conflicts between local workforce and foreign owners, and between private ownership of industry output, and the collective nature of the making of the products, producing the services. 

Their rejection of nationalisation under capitalist government ownership is aimed against the trends towards real social ownership coming to bring harmony with social operation. If it’s good enough for Singapore and New Zealand for government to own their airlines, why not here?

The billion-dollar rescue package is a band aid to avoid total collapse but flies in the face of capitalism’s driving forces. 

At best the government’s present course will delay but cannot change society’s plunge towards monopoly and state monopoly in the airline industry as a precursor to an independent Australia and the emerging socialist society. 

The workforce facing catastrophic unemployment demands much more.