A Bailout Backlash Nears for Airlines

Bailouts have consequences

American Airlines confirmed yesterday that, amid delays trying to keep up with surging demand, it would cut nearly 1,000 flights in the first half of July. Fewer flights, especially if other airlines follow its lead, would drive up ticket prices and force passengers to delay travel plans, which means less money flowing to travelers’ desired destinations.

The airline’s move adds fuel to the debate about labor shortages. American said it had cut flights because of a shortage of pilots and airport workers. Critics said the airline should raise wages to attract more workers, especially since it received billions in government aid during the pandemic.

Companies that took bailout money could now face a backlash. Back in March, Andrew wrote that airlines — which received tens of billions in emergency assistance — would likely face criticism after the pandemic similar to what banks faced after the financial crisis. One example: Lawmakers in Philadelphia recently proposed a bill that would require airlines to pay for new health benefits for thousands of airport workers. American Airlines has tried to block the bill, saying the increased costs would force the airline to cut the number of international flights it offers from the city.

• As Representative Conor Lamb, Democrat of Pennsylvania, told the Philadelphia Inquirer, “We just got done bailing out this industry. When you do that, I think it gives us a say in how their workers should be treated.”

Bailouts are unpopular, because they typically end up pricier and less productive than expected. Andrew estimated that the government’s initial pandemic grant to airlines cost $300,000 per job saved. Given these costs, airlines should brace themselves for similar requests like those in Philadelphia from lawmakers elsewhere.

Politicians sense public support in imposing additional costs on bailout beneficiaries long after the government has ridden to the rescue. The mechanisms for doing that include forcing airlines to keep flight schedules they say they can’t maintain or to pay workers salaries they claim they can’t afford.

• Deborah Lucas, a professor at M.I.T. whose work on the financial crisis has highlighted the high cost of the bank bailouts, warned that these tactics are messy. “Congress set the conditions that the airlines had to satisfy when they enacted the bailout,” she said. “It seems unfair and impractical to try to change the rules now.”

HERE’S WHAT’S HAPPENING

The Supreme Court backs paying student-athletes. The high court ruled unanimously that players could receive modest education-related payments, opening the door to a more expansive challenge to the N.C.A.A.’s ban on compensation for athletes whose games generate billions for their schools.

Lordstown tries to prove it’s back on track. The embattled electric-truck start-up opened its Ohio factory to investors and analysts for a look at its vehicle prototypes, after a series of contradictory statements about its financial health. The company also faced criticism over a Wall Street Journal article about executives selling stock.

The E.U. opens an investigation into Google’s online ad business. The bloc’s antitrust arm will formally examine whether the company abuses its dominance in the sector. It will be one of the broadest inquiries into a key Google business and will consider accusations not covered by an antitrust lawsuit filed by several U.S. states.

Vivendi investors overwhelmingly approve a spinoff of Universal Music. Nearly all shareholders who voted at a special meeting of the French conglomerate today backed the move — which includes an investment by Bill Ackman’s SPAC — despite protests by two activist investors.

Steven Spielberg teams up with Netflix. The famed director’s Amblin Entertainment signed a multiyear production deal with the streaming giant. It’s something of a coup, since Spielberg has been a big proponent of watching movies in theaters.

Goldman’s qualified victory

The Supreme Court yesterday handed Goldman Sachs a win in a securities fraud case that had the potential to be hugely significant — but ultimately fizzled. The case, which pitted the firm against a group of pension funds, could have made it harder for investors to sue as a group, but was instead sent back to a lower court with existing standards in place. It’s a rare case in which all parties can claim some success.

“Goldman won the smallest possible battle while losing the war,” Robert Jackson, a law professor at N.Y.U. and a former S.E.C. commissioner, told DealBook. “It failed to change the law.”

The case is a decade old, but still beginning. The investors claim that Goldman misled them with generic statements about its business practices before the bank settled a 2010 S.E.C. case that claimed conflicts of interest over selling subprime mortgage products, which hit its stock price. Lower courts certified the investors’ class status based on a presumption that all shareholders indirectly rely on company statements when buying stock. Goldman has twice challenged that finding.

Generic statements shouldn’t be considered a factor in the bank’s stock price, Goldman claimed. Statements like “our clients’ interests always come first” can’t be held against the bank, it said. Advocates for investors countered that Goldman was hoping to create an “anything goes” loophole, allowing companies to issue meaningless reassurance without risking liability. In the end, everyone from the Supreme Court justices and the dueling parties at oral arguments to the federal government in an amicus brief agreed that generic statements are relevant and should be weighed among other facts.

“The parties’ dispute has largely evaporated,” Justice Amy Coney Barrett wrote, sending the case back for more review but correcting Goldman on one point: The defendant bears the burden of persuasion if it wants to block investors from suing as a group. Ann Lipton of Tulane Law, a securities law expert and former litigator, said the “incredibly technical” Supreme Court decision was important for what it avoids — accepting the bank’s boldest claims would have dealt a severe blow to investors’ interests, she said.

“It is insane that our financial regulatory system has allowed these banks to operate with this business model.”

— Aaron Klein, a senior fellow at the Brookings Institution, on how some banks rely on overdraft fees as a main source of profits. Many banks are reducing or eliminating the charges in response to customer complaints and regulatory scrutiny.

Crypto supporters look for long-term gain past short-term pain

After a torrid few days for Bitcoin, which has lost about 20 percent of its value over the past week, traders are muttering about death crosses, hashrates and the Chinese province of Sichuan. Let us explain:

• The “death cross” is a technical pattern in which the 50-day moving average drops below the 200-day average. Some chart watchers think this portends trouble — why else would it have such an ominous name?

• Bitcoin’s hashrate is a measure of the computing power devoted to processing the cryptocurrency. It too has fallen sharply, which many believe is related to Chinese authorities’ cracking down on the huge computer farms that “mine” the currency in regions like Sichuan.

Still, it’s not all bad for cryptocurrencies. The more important long-term trend, said Matthew Sigel, the head of digital assets research at investment manager VanEck, is the gradual mainstream adoption of cryptocurrencies. And this is where you also tend to hear about E.T.F.s and El Salvador:

• Regulatory obstacles to wider crypto adoption are significant; VanEck’s application for a Bitcoin E.T.F. in the U.S. was delayed for a second time last week. (Sigel declined to comment on the application.) These vehicles, which already trade in Canada and parts of Europe, would greatly expand the scope of potential investors with exposure to crypto.

• Beyond financial institutions, the sovereign adoption of Bitcoin by El Salvador may finally prove that crypto is what its proponents have long proposed: a tool for democratizing finance. Sigel said it gave the country’s mostly unbanked population a new choice and promoted technological innovation, just as other countries encourage green energy with subsidies.

Succession pains at Google

Sundar Pichai faces internal criticism of his leadership at Google, Daisuke Wakabayashi reports in The Times. Part of Pichai’s challenge, Daisuke writes here for DealBook, are comparisons with his predecessor, Larry Page.

It’s not uncommon for longtime employees to look back fondly and lament how things have changed. This is especially true when there is a changing of the guard, like when a trusted deputy takes over for a revered founder. When Steve Jobs died and Tim Cook became Apple’s chief executive, many executives wondered whether the company would lose what made it special. Sundar Pichai, Google’s affable and low-key C.E.O., faces a similar challenge in replacing Larry Page, one of Google’s co-founders.

By almost every measure, Google is riding high. Yet a group of current and former executives told me that cracks were showing, and they stem partly from the leadership of Pichai, who took over Alphabet, Google’s parent company, in 2019.

Pichai and Page differ in their leadership styles. Page would often scold engineers for not thinking big enough. Some executives who’ve been at Google since the early days said that Pichai emphasized the importance of collaboration and working well together, but that he was risk-averse and indecisive.

Page cared little about public perception, the current and former executives said. He did not speak to the press, analysts or even shareholders for the last few years before he left Alphabet. They said Pichai was more sensitive, spending considerable time on Twitter, monitoring what people are saying about him and the company.

Defenders of Pichai say that Google is growing fast and that Pichai has worked to reduce growing pains — for instance, by cutting down on the number of decisions that need his sign-off. They said he emphasized the management team rather than his ego. Alphabet’s market cap continues to march higher, to nearly $1.7 trillion.

Read Daisuke’s full article about Pichai’s leadership.

THE SPEED READ

Deals

• The parent company of Soho House, the upscale members-only club, filed to go public on the New York Stock Exchange. (NYT)

• The eyewear giant EssilorLuxottica is considering walking away from its $8.6 billion takeover of the eyewear store operator Grandvision. (Reuters)

• Sanderson Farms, the U.S. poultry giant, is reportedly weighing a sale, drawing interest from the likes of Continental Grain. (WSJ)

Politics and policy

• Bermuda is pushing back against the international push for a global tax overhaul: “It’s a sovereignty issue,” its finance minister said. (FT)

• The Supreme Court ruled that more than 200 patent judges were improperly appointed, but stopped short of overhauling the patent review process. (NYT)

Tech

Best of the rest

• Activision Blizzard shareholders barely approved a $155 million pay package for the video game developer’s C.E.O., Bobby Kotick, after the vote was delayed. (FT)

• Goodbye, Bill and Melinda Gates Investments. Hello, Cascade Asset Management. (Bloomberg)

• The Las Vegas Raiders’ Carl Nassib became the first active N.F.L. player to publicly announce that he is gay. (NYT)

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