There is a hand-painted trailer parked in a field by the highway on my way to work at Grove City College. The message is simple: vote for Trump, stop the communist takeover. This week, I read that the Trump administration is in advanced talks to loan Spirit Airlines $500 million in taxpayer money, in exchange for warrants that could give the federal government an ownership stake of up to 90 percent in the carrier. I keep thinking about that trailer, and the irony writes itself.
The federal government taking ownership of failing private companies used to be the thing we warned about. Now it is being floated as a rescue plan for a poorly run airline. The strongest version of the administration’s argument is that this is industrial policy, not communism. But propping up a single unprofitable carrier whose own customers and competitors have already moved on is not industrial policy. Industrial policy is just the label we give to bailouts we want to defend.
Why Spirit is failing
Spirit Airlines is not a victim of unfair competition or a sudden external shock. It is a company that has filed for Chapter 11 bankruptcy twice in roughly a year, most recently in August. Its ultra-low-fare model has been squeezed for years by the major carriers’ no-frills basic economy offerings. United CEO Scott Kirby, speaking to analysts this week, said it plainly: well-run airlines remain solidly profitable in this environment. The crisis at Spirit is a Spirit problem, not an industry problem.
Even members of the administration know this. Transportation Secretary Sean Duffy publicly worried about throwing good money after bad, noting that no private buyer wants Spirit at any price. The FAA administrator, standing next to him onstage, interjected that Spirit “can’t have any of our money.” Senator Ted Cruz, who chairs the Senate Commerce Committee, called the idea “absolutely terrible.” When the Transportation Secretary, the FAA administrator, and the chair of the Senate Commerce Committee all warn against a deal, the burden of proof should be very high.
The numbers tell the story. Spirit ended last year with about $337 million in cash. JPMorgan analysts estimate that, given current jet fuel prices, the company faces an additional $360 million in fuel costs this year alone, more than its entire cash balance. No private investor wanted to close that gap. According to multiple reports, Commerce Secretary Howard Lutnick has been the chief proponent within the administration of having taxpayers close it instead.
This isn’t 9/11 and it isn’t COVID
The two large airline bailouts in living memory were responses to genuine systemic shocks: the September 11 attacks and the pandemic. Both packages were industry-wide and aimed at preserving a national transportation network when passengers were afraid or forbidden to fly. Spirit’s situation is different in every way that matters. Passengers are flying. The major carriers are profitable. The problem is one company’s cost structure and balance sheet. Singling out one carrier for $500 million in federal financing is not crisis management. It is industrial policy by personality, with the government picking which companies live and which die.
But what about the JetBlue merger?
The White House’s defense is that Spirit would be on firmer footing if the Biden administration had not blocked its merger with JetBlue. There is some truth to that. But it is not an argument for a $500 million federal loan. If consolidation was the right answer, the right policy now is to clear the path for a private buyer, not to have the government serve as the buyer of last resort. No private acquirer is currently willing to take over Spirit at any price.
What conservatism is supposed to mean
I recently argued that the free market had already ruled on Cracker Barrel’s outdated business model long before any logo controversy. The same logic applies here, though the stakes are higher because taxpayers are on the hook. Companies fail. That is not a market malfunction; it is the market working. This is what the freedom to fail actually means. Capital, employees, gates, and routes are redistributed to operators who can use them more productively. Take that freedom away, and you have not preserved the free market. You have replaced it.
There is also recent precedent for getting this right. In 2002, United Airlines sought a $1.8 billion federal loan guarantee to avoid bankruptcy. The Air Transportation Stabilization Board denied the request, finding United’s business plan financially unsound. United filed for Chapter 11 four days later and emerged in 2006 through private restructuring, leaner and stronger. The same federal government that said no to United is now considering a $500 million loan and a 90 percent ownership stake in a smaller, weaker carrier with a worse track record.
Once the federal government crosses this line for Spirit, it will be very hard to say no to the next failing company that shows up in Washington with a payroll figure and a sympathetic story. There will always be a next one. JPMorgan analysts have already warned that a Spirit bailout would set a precedent that could “prove difficult to contain” and that JetBlue and Frontier would likely follow.
If we are serious about preventing a communist takeover, we should not start by making taxpayers the owners of last resort for an airline no one else wants to buy.