Kevin O’Leary says give stimulus to the people who need it, not ‘zombie companies’
As stimulus negotiations in Washington continue to make little headway, leaving millions of Americans steeped in uncertainty amid the ongoing coronavirus pandemic and unprecedented job losses, Kevin O’Leary has some ideas as to what the next move should be.
The $1,200 stimulus checks sent to Americans in April starting in April weren’t a good idea, O’Leary, celebrity investor and chairman of O’Shares ETFs, believes. He advises against a second round, and has outlined what he thinks should be deployed instead.
“No they’re not” useful, O’Leary, a judge on ABC’s “Shark Tank,” told CNBC’s “Capital Connection” on Wednesday. “They are very blunt instruments, and there is no means test.”
Elaborating, O’Leary described the U.S. as having “have and have not” sectors, with some currently at a serious disadvantage. If certain industries need to be pared down to meet the “new normal” of life during and after a pandemic, it makes more sense to let the industries take the hit while directly offering checks to the individuals affected, he argued.
Airlines, many analysts say, are one of these industries.
“Even if tomorrow there’s a vaccine and you could inoculate the entire population, most businesses have figured out they can spend 20% less on business travel because they have technologies like the one we’re using right now to communicate with customers,” O’Leary said, speaking via videoconference.
“And so the airline industry is very under favored … why bail out a zombie business? Airlines go out of business all the time. Let them go bankrupt, and let the weaker airlines be managed by the stronger ones after the asset transfer.”
Stimulus, he stressed, should then be targeted toward people who are unemployed and need the funds, rather than a blanket check mailed out to everyone in the country, most of whom are still employed.
“It’s better to actually pay the employees a 14 month, call it $400 unemployment check, as opposed to just sending out $1,200 once or twice to everybody when you know 80% of the population still has a job.”
Airlines on the brink
Forty-three commercial airlines have already folded so far this year as air travel reels from the hardest hit in its history. The International Air Transport Association earlier this month warned that the industry will burn $77 billion in cash in the second half of this year, with continued bleeding of around $5 billion to $6 billion each month in 2021 due to a slow recovery. Airline CEOs are pleading with their governments for bigger bailouts even as industry experts predict the sector won’t see a rebound to pre-pandemic levels until at least 2024.
Numerous commercial airlines around the world have received massive bailout packages while slashing services and laying off huge swathes of workers.
After receiving a $25 billion industry-wide bailout in March under the CARES Act, commercial airlines in the U.S. are now pressing Congress and the White House for renewed funding of the same amount, assistance they say is necessary to cover payrolls and prevent tens of thousands more from getting laid off.
But many economists agree with O’Leary and oppose more bailouts, arguing that there is no point spending taxpayer money to keep airlines running at pre-pandemic capacity when travel has been so downsized. Instead, they say, the industry needs to face reality and restructure. And House Speaker Nancy Pelosi has refused the notion of helping airlines without a broader relief package for the country, one of the many sticking points that has kept stimulus progress frozen for months.
‘A giant digital pivot’
So what should the stimulus funding ultimately accomplish? For O’Leary, it’s whatever makes the economy more efficient and adapted to the rapid industry transformations underway thanks to the pandemic and ensuing work-from-home boom.
“All of this stimulus money at the end of the day should be towards this transition that’s occurring in the U.S. and everywhere else in the world — a giant digital pivot,” he said, adding that companies already thriving thanks to their digital platforms — like e-commerce — don’t need any stimulus help.
“Businesses that can work online, sell direct to their customers, the Nikes of the world … are very successful. Why should the government be providing capital to them when they don’t have to? Just the sectors like travel, like entertainment, like food services, like cruise lines, like the wedding industry — they’re all wiped out. That’s 20% of the economy. Give them unemployment checks while those employees figure out where to go next.”
Support authors and subscribe to content
This is premium stuff. Subscribe to read the entire article.
SubscribeGain access to all our Premium contents.
More than 100+ articles.