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Biggest U.S. airlines spent bulk of free cash flow on stock repurchases

bloomberg.com

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Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases

#31

Post by notyourday »

duaoebg wrote: post #8
chewz wrote: post #3

So it would be logical if shareholders re-capitalize airlines now. Or let them fall if shareholders see no point in keeping airlines alive.

That would involve selling shares at a low price after buying them at a high price. This would make management look stupid.

> That would involve selling shares at a low price after buying them at a high price. This would make management look stupid.

It is difficult for management not to look stupid if it is stupid. Airlines were doing well because everything was doing well, not because airlines management was non-stupid.

Not having a car accident on an open road with no other cars in a perfect weather does not make one a good driver. It just makes one not a bad driver.

Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases

#32

Post by hef19898 »

roenxi wrote: post #15
lordnacho wrote: post #10

Earlier 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.

I read it that airlines could have simply put the cash in a bank account. Pretty mch what Apple does. becasue that amount of free cash would sure be handy right now.

Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases

#33

Post by akg_67 »

dougweltman wrote: post #30

FCF 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 capit…

Capitalize profits socialize losses that is American corporate way. Executives keep the profit and expect taxpayers to bailout losses.

Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases

#34

Post by roenxi »

frgtpsswrdlame wrote: post #29
roenxi wrote: post #15

Earlier quoted context omitted.

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.

Which is a fair point but ... and I'm going to stop after this because I've made my point to the best of my ability ... but if they did that then the money wouldn't be called free cash flow because they've decided they need it for emergencies. They could be extremely risk tolerant and they'd still be sending all their FCF to shareholders. The amount would simply be smaller.

I'm totally on board that bailouts are the worst and are inappropriate; but the statistic in the article is an accounting identity. They call the money they send to shareholders FCF, so obviously around 100% of FCF is going to be going to shareholders. If they think there is a potentially better use for the money than going to shareholders it isn't classed as FCF.

Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases

#35

Post by hef19898 »

yingw787 wrote: post #19

I 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…

The planes, airports, pilots and ground vrews are still there. Maybe unemployed, but the infrastructure doesn't simply disapear. So any government could always just step in and requirate them. If airlines would operate as effeciently is a different story. But that is basically what the German government has in the books for all civilian trucks if, you know, the Russiians would have attacked.

But I gree it would be best to keep these operations in civilian hands, all processes and tools are already there to move people and goods around.

Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases

#36

Post by AznHisoka »

dougweltman wrote: post #30

FCF 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 capit…

But some of these airlines have a dividend already. American Airlines has a 2.5% dividend. That is returning cash to investors. Why buy back shares then?

If they only paid a 2.5% dividend in 2015, they would have returned some cash to investors. But instead, they also spent $3.5 billion (!) on buybacks in 2015, almost half their market cap at the time. https://www.fool.com/investing/general/2016/01/15/expect-mor...

Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases

#37

Post by tyfon »

sub7 wrote: post #24

Btw 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.

If they're bailed out the government should take over the stock and if they survive the government can recoup the money it cost to bail them out by selling stock again.

It's how it works in most countries at least.

Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases

#38

Post by OliverJones »

Well, they returned cash to shareholders in good times. Guess it's time for them to sell new shares to get the cash to tide them over bad times. Buy high, sell low? Oops. Stuff happens.

But the current capital markets will impose no such discipline, sad to say.

Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases

#39

Post by tomp »

atlasunshrugged wrote: post #9
chewz wrote: post #3

So it would be logical if shareholders re-capitalize airlines now. Or let them fall if shareholders see no point in keeping airlines alive.

Why would the shareholders do that if they think the government may step in and bail them out?

that's why the government should never bail out shareholders. Bail out the company, sure - if the company is vital for "the system" (which airlines are, long-term) - but only after bankruptcy, i.e. wiping out the shareholders.

Re: Biggest U.S. airlines spent bulk of free cash flow on stock repurchases

#40

Post by roenxi »

dougweltman wrote: post #30

FCF 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 capit…

If they go under the aircraft will still be there. Just new owners. Ban foreign buyouts then let them go bankrupt and be sold to the highest bidders.

We're about due for different owners of capital; the situation has been far too static. The bailouts in '08 kept a bunch of very poor managers in charge. 100% wipe-outs were appropriate in '08, and they will be appropriate again this time. Of all the people we need to feel sorry for, capitalists are the last. And I say that as an ardent capitalist. The social contract there is very clear and literally written down in many cases.

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