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U.S. airlines want a $50B bailout. They spent $45B buying back their stock

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51–60 of 164 posts

Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock

#51
post #12

I really hate that this argument keeps popping up. There's plenty of reasons to hate bailouts or airlines or anything else, but who the hell could have predicted the world was going to shut down like this in 2015-2019? We were in one of the biggest bull markets in the history of the United States, business was good, and the companies used some of that money to buy back stock. People make it sound like they were buyin…

> No business is going to hoard 50 billion dollars in an emergency fund for a pandemic that cuts 90% of revenue, that's just absurd.

Aren't there a number of companies that have been hoarding cash for some time? [1]

1. https://www.cnbc.com/2019/11/07/microsoft-apple-and-alphabet...

Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock

#52
post #12

I really hate that this argument keeps popping up. There's plenty of reasons to hate bailouts or airlines or anything else, but who the hell could have predicted the world was going to shut down like this in 2015-2019? We were in one of the biggest bull markets in the history of the United States, business was good, and the companies used some of that money to buy back stock. People make it sound like they were buyin…

You might not expect that some particular disaster is going to happen, but you can expect that some setback is going to occur, eventually. The good times do not last forever. It's not like the principle of having a reserve for bad times is a new idea (see also: ant, grasshopper). If our corporate overlords bet everything on short term gain, and left nothing for the tomorrow that they thought would never come, why sho…

Yeah, but most setbacks lead to a 10% drop in flights, not 99. This is quite material. A company that anticipated up to a 20% drop in flights and saved to last a year with that, will only be able to last a few months with a basically 100% drop in flights. That is exactly what we're seeing now.

Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock

#54
post #3

is there an explanation for stock buybacks that isn't ' evil stockholders'? edit: this was an actual question not a rhetorical one. curious why the downvotes?

Correct me if I'm wrong but isn't it also a bet on the future in the sense of "I think our stock is undervalued right now and that it will go up in the future, so I should buy it cheap right now and then I can reissue the stock and raise a significantly more amount of money"? At least that's how I've thought about it

Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock

#55

In good times, people complain about companies like Apple "hoarding cash". Now, people complain about companies redistributing profits to their shareholders--many of which are ordinary people holding shares in their 401(k)'s or otherwise. They really cannot win.

Apples cash hoard was all sitting overseas because it couldn’t be repatriated, no? That’s kind of a different scenario... they didn’t really choose to hold cash. They just didn’t want to pay the tax to bring it to the states.

Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock

#56
post #12

I really hate that this argument keeps popping up. There's plenty of reasons to hate bailouts or airlines or anything else, but who the hell could have predicted the world was going to shut down like this in 2015-2019? We were in one of the biggest bull markets in the history of the United States, business was good, and the companies used some of that money to buy back stock. People make it sound like they were buyin…

They won't "go under". Force them into bankruptcy, someone buys them and assets out of bankruptcy. Management learns that there are huge ramifications for poor management decisions prioritizing investors short term wants vs business long term needs.

Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock

#57
post #12

I really hate that this argument keeps popping up. There's plenty of reasons to hate bailouts or airlines or anything else, but who the hell could have predicted the world was going to shut down like this in 2015-2019? We were in one of the biggest bull markets in the history of the United States, business was good, and the companies used some of that money to buy back stock. People make it sound like they were buyin…

No, if the airlines "go under" in bankruptcy, the assets, airplanes, and people remain-- with new leadership and investors. The dynamic, economic outcome is to let them fail and reorganize them.

Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock

#58
post #27
post #12

I really hate that this argument keeps popping up. There's plenty of reasons to hate bailouts or airlines or anything else, but who the hell could have predicted the world was going to shut down like this in 2015-2019? We were in one of the biggest bull markets in the history of the United States, business was good, and the companies used some of that money to buy back stock. People make it sound like they were buyin…

The right way to structure this is to issue $50B worth of stock to the government. The airlines can buy it back with future profits to prop up the price once things are back to normal, while keeping the company afloat and retain jobs now. The shareholders would protest, and should be allowed a right of first refusal. Put in money at the same price per share to avoid dilution if you want to. Their alternative is bankr…

That's roughly how the GM bailout worked. 'The government initially had a 61% stake in GM when the company emerged from bankruptcy in 2009, leading critics of the bailout to dub it "Government Motors." It started to sell that stake with GM's November 2010 initial public offering. '

Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock

#59
Having worked in the financial industry for close to two decades, and with most of my friends in the same industry, it is remarkable to what lengths regulators went after the 2008 banking crisis.

Banks are vital middlemen between many parties and as such, were already heavily regulated back then, but after the massive tax-payer funded bailouts, regulation went into overdrive.

For example, Banks are expected to survive short- to mid-term dire periods. However, the 2008 crisis showed that most banks were not in that position. So the regulators went into overdrive and regulated most of the weak spots they had identified, and (IMO) most importantly, really stepped up stress tests. Banks have to demonstrate that they can survive interest rate shocks, market crashes, political crises, etc. for a certain amount of time.

And these things get audited extensively. A friend of mine works at a bank under direct ECB oversight, and the sheer amount of data, models, simulations, etc. they need to produce is just staggering.

Perhaps it is time to apply some of these methods to other industries that might only survive with a taxpayer bailout. For example, a global pandemic as we are experiencing right now, is not exactly something that was unimaginable before.

Airlines could be expected to maintain contingency plans for such scenarios, and required to maintain appropriate financial buffers, with stock buybacks, dividends etc. forbidden as long as those buffers are below the levels required by those scenarios.

Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock

#60
post #12

I really hate that this argument keeps popping up. There's plenty of reasons to hate bailouts or airlines or anything else, but who the hell could have predicted the world was going to shut down like this in 2015-2019? We were in one of the biggest bull markets in the history of the United States, business was good, and the companies used some of that money to buy back stock. People make it sound like they were buyin…

I agree that a lot of these arguments seem pretty naive and lack understanding about how markets and the economy work. Also there is nothing inherently wrong with stock buybacks at all I think. However, I think everyone would benefit by realizing that these "unpredictable" events are actually not that rare and we should be prepared for them. Companies should keep more cash for unpredictable scenarios. It didn't have to be a pandemic, it could have been war, volcanic eruptions, terrorism etc. Companies should not assume it will always be "good times". Also these types of events seem to trigger chain reactions that make leverage and financial tricks really risky, so keeping cash I think is good.
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