I expect we'll soon find out an awful lot of businesses have done the same or close to the same that are about to ask for bailout money (casinos, hotels, etc.). I've long been worried about the strength of the market in the U.S. because prices have seemed to mainly be because of buybacks and financial maneuvering rather than because of strong fundamentals, increased productivity/innovation, etc. I hope the gov lets a few of these businesses fail or put absolutely draconian repayment terms on them if only to show that companies can't depend on the government to bail them out every time something bad happens they weren't prepared for.
Biggest U.S. airlines spent bulk of free cash flow on stock repurchases
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Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases
#22Wiki says: > free cash flow to firm (FCFF) is a way of looking at a business's cash flow to see what is available for distribution among all the securities holders of a corporate entity. [0] What do people expect them to do with free cash flow? The point of free cash flow is to get the money back to shareholders. These aren't high-growth industries. [0] https://en.wikipedia.org/wiki/Free_cash_flow
These companies have gutted their research and development costs to increase free cash flow. For example, Boeing’s share repurchase program also accelerated as BA reached all time highs and became an extremely risky asset after the second MAX crash and endless FAA investigations. That’s a senseless use of capital yet they’re asking tax payers for bailouts.
We’re talking about airlines, not Boeing. How much R&D should they be doing?
Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases
#23Wiki says: > free cash flow to firm (FCFF) is a way of looking at a business's cash flow to see what is available for distribution among all the securities holders of a corporate entity. [0] What do people expect them to do with free cash flow? The point of free cash flow is to get the money back to shareholders. These aren't high-growth industries. [0] https://en.wikipedia.org/wiki/Free_cash_flow
[0] Save cash for a rainy day
Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases
#24Btw most of these shareholders have been smart enough to sell immediately when the markets began falling so they will buy these stocks at the bottom and get bailed out all over again by the taxpayer and watch the capital multiply.
I'm all for getting rich but pump and dumps should be (are?) illegal.
Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases
#25Worth noting that this will be the 3rd industry which Warren Buffett has been both invested in and bailed out of during a crisis.
Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases
#26Wiki says: > free cash flow to firm (FCFF) is a way of looking at a business's cash flow to see what is available for distribution among all the securities holders of a corporate entity. [0] What do people expect them to do with free cash flow? The point of free cash flow is to get the money back to shareholders. These aren't high-growth industries. [0] https://en.wikipedia.org/wiki/Free_cash_flow
What about some equity in return for a bail out..
Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases
#27I feel like even civilian airlines have some national defense / security aspect to them since they’re so critical to our infrastructure (e.g. troop transports). I don’t want to return to the days before deregulation, but I think there should be federally enforced rules around remaining operational even during times of severe economic crisis. That being said, nobody expects a 100 year event, and it would be irresponsi…
> nobody expects a 100 year event
It's not. SARS was only 18 years ago. Now we have SARS-CoV in 2020.
https://en.wikipedia.org/wiki/Severe_acute_respiratory_syndr...
We, as a society, need to stop accepting dumb excuses.
Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases
#28> What do people expect them to do with free cash flow?
Pay down debt and keep enough money in the bank to weather turbulence ahead.
Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases
#29Earlier quoted context omitted.
They could hold on to some, just in case there was a disturbance that caused cashflow to stop for a while.
Then the money would probably not be free cash. It would be held under some sort of actuarial title for dealing with risk. Maybe amortization? I'm not an accountant. If the business needs it to sustain operations then it probably isn't free cash flow.
The argument here is that they actually did need it to sustain operations since there's a significant chance they'll now receive a bailout. The whole point is they took cash they should have kept as a backup and then used it to boost share price instead.
Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases
#30FCF is supposed to go to shareholders: it's what's left over after spending money running and growing the business. And this problem (and related solutions) will probably apply not just to airlines but also restaurants, retailers, etc.
In normal circumstances, chewz is right and they should either call up more capital from existing shareholders or go under. But these are not normal circumstances. 1) Everyone is capital constrained, and 2) airlines collectively are extremely important to the economy. This isn't a handful of one-off bankruptcies of a few laggards.
Investors are capital constrained and would need to sell off their other holdings at the very moment everybody else is trying to unload those same assets at depressed prices, risking a broader liquidity crunch that goes well beyond airlines, as other sectors are also in trouble.
So the next best solution is for governments to lend them cheap money to hold them over, or to recap with equity (diluting current shareholders, possibly by a lot) and gradually sell off that equity after conditions return to normal. That's what happened to the banks: in a sense, they went 90% bankrupt with existing shareholders getting massively diluted, but the companies were able to continue without the massive disruptions caused by them all going belly-up.
When it's a normal economic cycle, even most recessions, the right approach is to let the laggards die and let the shareholders get wiped out. When there's lots of volatility, it's better to let the shareholders get 60%, 80%, 90% wiped out but keep the companies alive.