Governments prepare to bail out airlines and airports

Around the world governments are preparing to bailout airlines and airports.

IATA estimates that some $200 billion is needed to prop up the industry. Australia has already offered A$750 million package and the US is looking at as much as $58 billion, in the U.K. it’s looking like around £7.5 billion in loans and credits will be announced in the next 24 hours. Other governments are preparing similar support.

If you’re wondering where all this money is coming from, and that includes the vast amounts being suggested to prop up families and businesses, it’s pretty simple.

In the old days, this would simply have been considered as literally, physically printing money.

These days it’s more generally referred to as “quantitative easing” when it comes to creating liquidity banks can use to loan to people and business. What happens is the government, which knows how much paper money and digital money is in circulation, goes up to the mythical “big computer” as it was once referred to, in the Bank of England, or the Federal Reserve, that displays how much the current amount is that’s permitted, and sees for example that it might be $10 trillion.

They just change the number upward and add another couple of trillion, and suddenly the government has more money.

Yes it’s that simple.

The downside is that you really can’t go on doing this for other than emergency management, because the result tends to be unexpected. In the US much of the money created out of thin air in 2008 was used by banks and big companies to buy back their own shares and made their shareholders very wealthy. Not what was intended. The other risk is rampant inflation, but that’s not an issue if it’s short term.

I’ve been looking at the headlines and the crush of listings on what airline has ceased operations or slashed them to the bone, well it’s verging on a tsunami.

If you’re in Europe and that includes the U.K., you won’t be flying anywhere because most airlines are either shut or barely operating at more than a skeleton level. The knock on around the world and US is just as vast, although some countries airlines just seem not to have grasped how bad things are because governments are sticking their heads in the sand.

None of us know quite how this will play out. There are always surprises, and when a trend emerges you’ll read about it here.

In the meantime: Keep safe, keep well.