The Big Corporate Rescue and the America That’s Too Small to Save

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On a recent Thursday evening in downtown Chagrin Falls, a Cleveland suburb named for a picturesque cascade in a nearby river, little was amiss: Diners in loafers and sundresses dropped off their BMWs and Alfa Romeos with valets before positioning themselves on patios at prudently spaced tables. Teens ranged around manicured parks taking selfies, while well-groomed women dipped in and out of The Artful Yarn, A Bit of Skirt, and other boho boutiques, cryo spas and vintage home goods stores.

Main Street leads north up a steep hill, past wooded estates, a polo field, and a baroque music venue, until it arrives at a turnoff with a sign on a stone gatehouse with a slate roof: “Marcourt Farm Private Property.”

Down the drive is the 25-acre, nine-bathroom, private lake-fronting, indoor pool-equipped residence of Nicholas Howley, the chairman of an aerospace company called the TransDigm Group, which he founded in 1993 as a merger of several small airline parts manufacturers. In 2017, his last year as CEO, Howley became the third highest-paid head of a U.S. public company, with compensation worth $61 million.

The company had 18,300 employees worldwide at the end of September 2019 and is headquartered in downtown Cleveland, a fact the company does not advertise. TransDigm’s corporate offices are on the 30th floor of a towering black monolith, built in 1964 as a landmark addition to the skyline at the height of Cleveland’s prosperity, just before the collapse of the steel industry and the outsourcing of automotive supply chains gutted the region’s industrial base. There’s no company logo at the top of the Erieview Tower. Someone passing through the lobby wouldn’t notice its presence. Unlike local titans Progressive Insurance and Sherwin Williams, TransDigm hasn’t sponsored any of the city’s sports arenas. It doesn’t donate to the city’s vaunted orchestra, and isn’t a member of the region’s chamber of commerce.

The Erieview Tower in downtown Cleveland houses TransDigm’s headquarters.

Girish Patel knows TransDigm is there, though. Its employees used to stop into his convenience store in the Galleria, a glass-roofed mall attached to the black tower. When it was completed in 1987, the Galleria became the first major new retail development downtown since the 1920s. Occupancy declined in the 2000s, however, and events fell off as the now-dated building struggled to compete with new convention and hotel facilities on the other side of downtown.

Patel, who goes by “Gary,” immigrated from India to California as a young man and came to Cleveland in 1995 to run a Dunkin’ Donuts franchise. He opened the Erieview Newsstand five years later. For twenty years, it was a good location, with reliable foot traffic, and few of the responsibilities associated with a street-facing storefront. People would buy sodas to go with lunches they got from the food court, or energy drinks before a Browns or Cavaliers game. A few years ago, he even sold a $1 million winning lottery ticket.

All that slammed to a halt in mid-March, as COVID-19 raced through Ohio and Gov. Mike DeWine declared a stay-at-home order to arrest its spread. TransDigm workers, along with other occupants of the black tower, retreated to their home offices. The federal government leaped into action, sending the $2 trillion Coronavirus Aid, Relief and Economic Security Act to President Trump’s desk for signature on March 27. The sprawling measure included hundreds of billions of dollars in aid to companies, and individuals in the form of a $600 weekly boost to unemployment insurance.

The legislation offered limited help to tenants of the Galleria. The few remaining restaurants in the food court — all completely dependent on nine-to-five office workers — vaporized.

Patel shut down his shop for a few months, reopening as soon as enough office workers returned to make it worthwhile. He got about $3,000 from the Paycheck Protection Program, a plan created by the CARES Act to help small businesses. It took a month for Patel to receive the money, which ran out almost immediately, eaten up by his small payroll and rent.

Now, Patel’s sales are just $200 a day, down from $700 on average pre-pandemic — which means he’s losing as much as $1,000 per month on the operation, with foot traffic still a fraction of what it used to be. He keeps a nervous eye on the boxes of candy and gum, knowing that he’ll have to throw them out if they expire before someone buys them. Even though the YMCA in the mall is open, it doesn’t drive business like the office workers did.

“People go in, get their exercise and get out,” said Patel, who speaks softly and wears a short-sleeved striped button-down to work with bright white Nike sneakers.

Girish Patel, or “Gary,” on a break from running his newsstand.

Unless things change in the fall, Patel figures he might have to close by December. His options are grim. He figures he could only get about $50,000 if he sold the business, moving it somewhere else seems just as risky as staying put, and the job market seems even scarier.

“How are we going to tell what’s a better location when the whole economy is struggling?” Patel wondered aloud, before trailing off. He had a brain aneurysm four years ago, and sometimes loses his train of thought. “I’m 54. Who’s going to hire me now?”

Upstairs in the black tower, TransDigm had much better options.

When the novel coronavirus swept through the travel industry in March, grounding flights and stalling airplane orders, TransDigm didn’t wait for a congressional bailout in order to keep itself solvent. It didn’t have to. On March 23, with a green light from Treasury Secretary Steven Mnuchin, the Fed announced that it would buy as much corporate debt as necessary — in the form of bonds — to reassure companies that they could raise money they needed to ride out the pandemic. Within a few weeks, the bond market had nearly regained the ground it lost, spurring a debt boom. U.S. companies issued a record $873 billion in bonds in the second quarter. Even highly leveraged companies seen as risky after years of aggressive borrowing, like TransDigm, got in on the action.

In April, the $27 billion aerospace manufacturer borrowed $1.5 billion in two bond offerings. The money “is an insurance policy,” Howley told investors, noting that it could come in handy if TransDigm wanted to pick up any more companies.

The Fed’s safety blanket wasn’t the only help for TransDigm. A few days later, Congress enacted tax cuts as part of the CARES Act that will bring tens of millions in direct aid to the company this year.

Unlike government loan programs set up to cushion companies affected by the pandemic, TransDigm’s support didn’t come with strings. The company wasn’t required to keep workers on the payroll or stop returning money to shareholders. Indeed, TransDigm said in April it would lay off up to 15% of its workforce, or nearly 3,000 workers. The next quarter, although revenues were down, those cuts allowed TransDigm to maintain its eye-popping 40% profit margin. Its share price has recovered most of the ground it lost in March.

In response to detailed questions, a TransDigm spokeswoman called its bond issuance a “prudent measure to ensure the company maintained liquidity in the face of the unprecedented and unpredictable commercial aerospace market conditions caused by COVID-19.” She also reiterated information released in April that laid-off employees received $4,000 payments to defray the cost of job searching and health care.

TransDigm and the Erieview Newsstand — a business similar to thousands of small enterprises lining Cleveland’s commercial corridors, now gasping for air — are emblematic of the diverging fates of very large businesses and the cities that host them. That dynamic has been supercharged by the economic effects of COVID-19, which have fallen hardest on the service industries that require face-to-face contact.

The streets of downtown Cleveland, which is still reeling from the loss of office worker foot traffic.

Congress and the Federal Reserve have created an array of pandemic rescue programs that are unprecedented in their speed, scale — more than $3 trillion compared to the roughly $1.5 trillion in post-crisis financial relief packages passed by Congress in 2008 and 2009 — and the nature of the aid offered. But the effects of the federal help have been unevenly felt.

By bolstering a bond market that had been in freefall, the federal government offered its largest, most rapid and least encumbered relief to large businesses that already had robust cash reserves. This intervention required no application process. Nothing protected rank-and-file employees from simply being laid off, and the prime beneficiaries have been shareholders and bondholders as the stock market has soared to new heights.

For small businesses, however, the programs were patchy, poorly administered and ultimately insufficient. The largest component of that aid, the $660 billion Paycheck Protection Program, kept thousands of small businesses afloat. But it was also maddeningly complex, and did not reach the companies that needed it most. By one estimate it saved only 2.3 million jobs, at the cost of $224,000 each.

TransDigm Got More Than All Stimulus Checks in Cuyahoga County Combined

While the company borrowed $1.5 billion, residents of the county and smaller businesses relied on programs that doled out far less.

Lena Groeger/ProPublica; source: SEC filings, Internal Revenue Service, Bureau of Labor Statistics, Ohio Department of Job and Family Services, Department of Health and Human Services, Small Business Administration, Cuyahoga County, City of Cleveland, Department of Education, Federal Aviation Administration, ProPublica estimates

Per Employee, TransDigm Took In a Lot

If all the money borrowed by TransDigm were divided up among its employees, they would have gotten over 16 times as much as if all of the other CARES Act spending were divided up among Cuyahoga County residents.

Lena Groeger/ProPublica; source: SEC filings, U.S. Census Bureau, ProPublica estimates

Even though Cleveland wasn’t as badly hit by the virus as other Midwestern cities like Detroit, the city suffered economically about as much as the rest of the country on average due to a weekslong precautionary lockdown that devastated local retailers. One out of five small businesses open in Cleveland in January 2020 were still closed by mid-August, according to the ecommerce platform Womply. Mirroring the country’s experience, the unemployment rate in Cuyahoga County, which contains the city, shot up to 22.9% in April, and remained at 12.9% in July. That left 78,000 people looking for work at a time when federal unemployment benefits were running out.

To be sure, starting in April, plenty of money flowed into greater Cleveland, mainly through the CARES Act — about $6 billion when the stimulus checks, extra unemployment insurance, small business loans and grants, aid to schools, local government subsidies and hospital grants are all combined, according to ProPublica’s calculations. (All that spending together amounts to about $5,000 for every resident of Cuyahoga County, or 6% of the county’s annual GDP.) For some, it kept the economy in a state of suspended animation, allowing families without income and businesses without profits to continue to pay rent and stay afloat.

But as Congress dithers on a new spending package, and Cleveland looks forward to hosting the first presidential debate at the end of September, uncertainty is suffocating thousands of small businesses like Patel’s. Paycheck Protection Program funds are gone, and for most businesses, revenue hasn’t nearly recovered — but they have neither access to unlimited credit nor the means to pay it back. All of that exacerbates existing inequities that had only just begun to heal after the deep blow of the 2008 recession.

“The idea is that it would be a bridge until recovery,” said Anthony Brancatelli, a Cleveland City Council member. “We need another bridge.”