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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

#41

Post by Retric »

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…

Airlines failure does not destroy the physical aircraft, or the skilled workforce. So, economically they can be restarted with minimal issues. Longer term the US so far from capital constrained and letting less efficient airlines fail is likely the best policy.

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

#42

Post by stingraycharles »

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’s how they transfer value to their investors. It costs money, but so do dividends.

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

#43

Post by tomp »

AznHisoka wrote: post #36
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...

Dividends and share buybacks are economically equivalent, the only difference is tax efficiency.

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

#44

Post by tomp »

roenxi wrote: post #40
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 f…

Just don't forget that a lot of "capitalists" are pensioners, college endowments, etc.

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

#45

Post by AznHisoka »

tomp wrote: post #43
AznHisoka wrote: post #36

Earlier quoted context omitted.

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...

Dividends and share buybacks are economically equivalent, the only difference is tax efficiency.

While true, my point is they were already returning cash to investors in the form of a dividend.

Why the need to do outrageously huge buybacks if they were already doing so?

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

#46

Post by em500 »

This article looks a lot like outrage porn. It suggests that there is something wrong with spending 96% of FCF on buybacks without stating it explicitly. I doubt most people without some decent corporate finance training can form an informed opinion about this.

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

#47

Post by ForHackernews »

Can we just let the airlines go bankrupt? For environmental reasons, air travel should be much rarer and much more expensive than it has been.

Businesses are going to need to learn to deal with teleconferencing. Employees can be given more time off and travel more slowly by train or ferry. There has to be some happy medium between total lockdown frozen economy and maximum-velocity economy that is killing people and the planet.

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

#48

Post by mjul »

AznHisoka wrote: post #36
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...

In some countries the tax regime has different levels of tax for dividends and capital gains, so in some countries buybacks are better for the shareholders than dividends.

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

#49

Post by roenxi »

tomp wrote: post #44
roenxi wrote: post #40

Earlier quoted context omitted.

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 f…

Just don't forget that a lot of "capitalists" are pensioners, college endowments, etc.

So we decide that we are going to give them government money. Plan A is to filter the money through a corporation first. I prefer plan B, which is give the money straight to the people involved - like pensioners or endowments - and be honest about what is happening.

Lets not let charity get mixed up in running a business. We have a no-fault system in free market capitalism - if you go broke you don't run the business. Doesn't matter if it is your fault or not. And almost magically, that aligns incentives to get the best outcomes.

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

#50

Post by op00to »

senordevnyc wrote: post #22
Donald wrote: post #20

Earlier quoted context omitted.

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?

I'd support research in getting me off the plane without having to have someone's fat, stinky, fart-loaded ass in my face for 15 minutes, then waiting in line for another 15 minutes to get off the plane as I bash other people with my bag. Maybe they could throw a few billion at that.
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