Biggest U.S. airlines spent bulk of free cash flow on stock repurchases • Hacker News Board

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

#91

Post by EarthIsHome » Tue, Mar 17, 2020, 12:53 PM UTC

yyy888sss wrote: post #70

EarthIsHome wrote: post #60

Earlier quoted context omitted.

Pensioners and wage earners are not capitalists. They depend on wages to live. Calling yourself a capitalist doesn't make you have capital. True capitalists are those who do not need wages (e.g. CEOs of airliners, billionaires, etc.).

In Australia we have Superannuation (compulsory contributions retirement fund) so actually pensioners are expected to live partly off capital gains/sale of shares. Of course their portfolios usually get more defensive (less stock more bonds) the older they get.

That is very similar to what we have in the US; we have 401(k)s, 403(b)s, 457(b)s etc. that tie our retirement to the stock market. In many cases, employers force their employees to enroll in them.

Think about these retirement accounts this way: capitalists take our money now under the presumption we will get it back when we're 60+. In the mean time, while we're working for a living wage, the capitalists get to profit off our labor now. They get to continue destroying the planet and exploiting other wage earners. They don't need a wage to live.

1) While employees have these retirement accounts, we are forced to contribute to them. We are forced into ensuring the well-being of capitalism.

2) Being forced to contribute to these accounts is diametrically opposed to the interests of our class. It makes us wish well for the stock market because our retirement is tied to it. But a more profitable stock market leads to more exploitation of the labor of my class. For these profits to exist, either you keep labor costs low, or increase prices.

I would prefer to extricate our retirement from the stock market and capitalism.

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

#92

Post by em500 » Tue, Mar 17, 2020, 12:56 PM UTC

airlines55 wrote: post #62

em500 wrote: post #46

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.

What could be more irresponsible than merely staying facts without also having the diligence to additionally write some apologetics for the facts themselves. What the reporter should have done, clearly, is get the opinion of one of those benevolent airline executives to explain why cash flow was spent on buybacks instead of literally anything else. They can tell us what we all know - that it is standard procedure and…

Both the journalist suggest that the airline execs should have done something different with the FCF without stating what (dividends? salaries? investments?) and why.

From your tone and reply it seems you agree, so maybe you can clarify this. What else should they have done with their FCF? Would everything be OK if they paid everything in dividends like utilities? Plow everything into investments like Amazon? Into what? Buying all their airplanes, rather than leasing airplanes? Stashing everything in a huge pot of treasuries like Apple? Giving their crew and support staff big raises?

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

#93

Post by chewz » Tue, Mar 17, 2020, 12:56 PM UTC

zaroth wrote: post #87

QuesnayJr wrote: post #77

Earlier quoted context omitted.

Apple has gigantic amounts of free cash flow, which is why they have $100 billion of cash on their balance sheet, despite their buybacks.

Just back of the envelope, if every Fortune 100 had $100 billion in cash, that would be $10 trillion sitting in accounts as, what, a rainy day fund? Apple keeps a massive cash hoard in case they want to do a very large strategic acquisition. Airlines would be doing mergers not acquisitions. IMO it’s entirely appropriate that if a black swan even cripples an industry like air travel for a government to offer low-inter…

Money is returned to shareholders as buyback or dividend and shareholders can capitalize company in times of need (or when they see an opportunity for expansion or market takeover).

This is more effective, quicker and cheaper way of capital alocation. It also eliminates political agenda.

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

#94

Post by ses1984 » Tue, Mar 17, 2020, 12:57 PM UTC

Dobbs wrote: post #6

roenxi wrote: post #5

Wiki 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

Pay employees more, increase benefits, better service for customers, put money away for a rainy day? There are lots of ways to spend money that are good for the long term rather than making the rich richer.

If you think your stock is going to beat the market then share buybacks are similar to putting money away for a rainy fay. If you don't think your stock is going to beat the market then close the business.

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

#95

Post by sub7 » Tue, Mar 17, 2020, 12:58 PM UTC

Lazare wrote: post #86

sub7 wrote: post #80

Earlier quoted context omitted.

Ah if only that was the case. Turns out, when the government is involved then the taxpayer is buying but the government is deciding what to buy. There is no hedge fund buying airlines right now. There will be a shitload of them lining up once the government commits to buying the debt because then they know there's only upside from there.

Gee, maybe you should buy the shared after the announcement then, and pick up some of that free money for yourself? (Ignoring, for the moment, that bailouts generally zero out equity holders to ensure debt holders get paid.) Your cynicism is healthy, but I'm not sure you understand how this process works.

No shit I will. But I happen to be loaded and the cast majority of people are not.

It's the people without money to deploy, the people who depend on fixed income (elderly, retired) and the people who had all their money in some index fund or mutual fund (your average Joe) that get screwed.

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

#96

Post by whb07 » Tue, Mar 17, 2020, 12:59 PM UTC

yyy888sss wrote: post #88

whb07 wrote: post #78

Earlier quoted context omitted.

You mean they couldn’t be doing R&D into better flight paths for fuel economy or risk? What about finding ways to better transact with the end client? Or a better way to deal with cargo? How’s about research into a machine to better load cargo into the plane? What type of question is this?

They already do this, in fact it's critical to optimise things like this in a low margin industry like airlines. Any airline that doesn't calculate the best flight paths for fuel economy will quickly go out of business.

Because they couldn’t spend more money to improve things, yep, you’re right.

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

#97

Post by dougweltman » Tue, Mar 17, 2020, 1:04 PM UTC

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…

1) Where will the money come from to buy the aircraft? Are you saying this with any sense of how long it will take to start a new airline like AA or Delta or whatever? Agency costs under a liquidation are absolutely massive.

2) Nobody is suggesting that protecting shareholders be a policy consideration, and that was true in '08 as well when the banks effectively went bankrupt (well, 90% of the way at least). The shareholders got wiped out when banks had to hand over 90% of their shares to the government in return for equity. When before you might have owned 10%, you then own 1%. That's the point of being a shareholder: you're last in line and take on that risk.

3. Instead, the concern is over the broader economic disruption of airlines suddenly no longer operating when other businesses rely on travellers: hotels, restaurants, stores, etc.

4. I get your point that it might be better to wipe the slate clean: iirc, some airlines are running software that's 40+ years old. Under normal circumstances, if that's a real problem, those airlines will have a disadvantage against newcomers, of which there are many. The difference here is when these businesses are failing not to an operational shortcoming, but something much larger.

You're talking about Chapter 11 liquidation as if it's nothing. There are massive agency costs there and assets stop operating until they can be sold. Chapter 9 is less disruptive (owners get wiped out, creditors own the business and the business finds new creditors to put in some money), and if there's a risk of wide-scale economic disruption, better still is something a little short of Ch. 9: a "bailout" where the government basically wipes out most of the equity and can put in some capital in return.

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

#98

Post by dariusj18 » Tue, Mar 17, 2020, 1:07 PM UTC

dougweltman wrote: post #84

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.

When they get bailed out, what do you think happens to the shares they hold? Company is worth $100, has 100 shares. You own 1 share, worth $1. Company takes $100 from Gov't, not a handout but rather in exchange for stock. Now it's worth $200, there are 200 shares, 100 owned by the government, 99 by other shareholders and 1 by you. In this situation, you're back where you started.

The math there doesn't work out. There aren't magically 100 more shares. Either the stock has to split (reducing the value of each share by half) or there are enough shares withstanding to sell.

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

#99

Post by Justsignedup » Tue, Mar 17, 2020, 1:13 PM UTC

aNoob7000 wrote: post #89

yyy888sss wrote: post #83

Earlier quoted context omitted.

Public companies aim to maximise shareholder value, however in competitive markets that usually involves improving service, having a happy workforce (higher benefits) so it all works. And putting money away for a rainy day will never be as beneficial for companies as for individuals.

If saving money for a rainy day is never going to be a top priority, then going bankrupt should be an option. I think what's frustrating for me is that under these circumstances, there will be a lot of individuals and small businesses that will go under because they didn't save enough for a rainy day, but if your big enough, we have to save you.

This is exactly the point.

There is never a reason to save if the government will always bail you out.

If you are forced to save because not saving could mean certain company death, you will save. And make sure you have a two year runway if zero business is happening.

But with the bailouts the companies are rightfully maximizing shareholder value.

The bailout should directly go to displaced workers and supporting them. It'll directly stimulate the economy and correctly punish the company got fucking itself.

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

#100

Post by Retric » Tue, Mar 17, 2020, 1:42 PM UTC

vonmoltke wrote: post #81

Retric wrote: post #67

Earlier quoted context omitted.

Opportunity cost, the banks in no way payed out what that money was worth at the time. Hand me 1 billion interest free for 5 years and sure I will pay the money back, but...

It was not interest-free: https://projects.propublica.org/bailout/list

As that points out, not all loans where paid back. The interest from those that did result in a nominal profit, but it’s far from what private lenders received for loans in that time period.

Thus opportunity cost, as it was a poor investment which is why it was called a bailout.