What is the connection between airlines and real estate?

My guess is you are thinking either (a) you get on a plane to visit your winter residence, or (b) none.
Read on to find out why neither answer is right.

When the pandemic first hit and the airlines asked for Government assistance I heard – and was impressed by – an argument which was on the lines that shareholders in public companies are bearing risk and therefore their equity should be wiped out before the Government gave them financial assistance.

The argument put forward was that investors in Borders and Barnes & Noble weren’t bailed out when Amazon ate their lunch; that owners of real estate in highly taxed States were not compensated when the Government limited the deduction of property taxes and mortgage interest.

That’s the risk of being an equity investor, the argument went.

But there is a major difference between those examples and the airlines in 2020. In the previous examples, companies or individuals suffered losses as a by-product of some other action – Amazon’s move into bookselling, a limitation on tax deductibility.

Why the airlines are different is because the Government (and I use that term collectively for Federal, State or any level of government) banned travel. The airlines suffered losses specifically as a result of that Government directive.

The connection I see with real estates lies with the principle of eminent domain.

Eminent domain refers to the power of the government to take private property and convert it into public use. The Fifth Amendment provides that the government may only exercise this power if they provide just compensation to the property owners.

In the case of airlines, the Government has taken away the ability of the companies to undertake business. Compensation seems appropriate – just like eminent domain.

Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com

Sagan Harborside Sotheby’s International Realty
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