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

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

#61

Post by clmckinley » Tue, Apr 07, 2020, 4:52 PM UTC

atonse wrote: post #30

jm20 wrote: 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…

Sure they could've held it. Apple did it for a while. You could invest it and make even more, or invest a bit in not treating your passengers like f*cking cattle and constantly charging millions of fees, maybe?

why isn't stock buy back considered inside trading? Is the purchase somehow firewalled from the company?

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

#62

Post by ghaff » Tue, Apr 07, 2020, 4:52 PM UTC

kcorbitt wrote: post #22

dominotw wrote: 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?

The reason most people invest money in public companies is because they expect to get money back at some point. Otherwise, why invest at all? There are two primary ways that companies can return money to shareholders: dividends and stock buybacks. Financially, the two are exactly equivalent. Tax-wise, they're mostly equivalent (there are a few exceptions around the edges). When a company issues a dividend, all the st…

I mostly agree. Although dividends arguably are a bit more reliable than stock appreciation because of buy backs. However, the basic point is entirely correct. If you think stock buy backs are evil then you must logically agree that dividends are also evil. Which doesn't really make any sense given that, under classic finance theory, the share price is the discounted present value of dividends.

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

#63

Post by amylene » Tue, Apr 07, 2020, 4:52 PM UTC

dominotw wrote: 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?

Matt Levine has a good take from a few weeks ago. Basically he argues the buybacks were the only sensible play, if you were the airlines.

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

#64

Post by brockwhittaker » Tue, Apr 07, 2020, 4:53 PM UTC

billylindeman wrote: post #13

brockwhittaker wrote: post #8

Earlier quoted context omitted.

Sure — what are your other options if you have lots of cash? 1. Keep it in cash and get sub-inflationary levels on it, and perform poorly due to your lack of leverage. 2. Invest it in other market securities, effectively running some hedge fund. Not a great idea, distracting from your core biz, and shareholders may not appreciate the exposure to outside risk. 3. Buy back your own stock, which gives back to shareholde…

4. Pay a dividend

No, because dividends don't benefit from compounding stock prices.

If you buy back your stock from 20 -> 80 a share vs. having paid out the same amount in dividends, the share buybacks yield a much greater income than dividends, which once paid no longer compound unless individual investors re-invest them.

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

#65

Post by AndrewBissell » Tue, Apr 07, 2020, 4:53 PM UTC

ComputerGuru wrote: post #25

AndrewBissell wrote: post #21

Earlier quoted context omitted.

This is a canard for a lot of reasons, first and foremost because the government has not charged one penny for the enormous subsidy it provides in the form of a now-explicit backstop which allows these companies to borrow at much lower interest rates. Those lower interest rates translate directly into less income for pension funds and savers. Every large investment bank owes its continued existence to the government.…

But it never was about making a return on profit. The solvency and economic growth enabled by these overnight loans (assuming it doesn’t cause bigger problems down the line) is absolutely worth it.

That's a completely different and opposite point to "the government made money on the bailouts, actually."

> (assuming it doesn't cause bigger problems down the line)

We're dealing with those bigger problems now, today. The moral hazard created by the 2008/2009 bailouts is a big part of why executives could leverage their companies to buy back stock throughout the 2010s with confidence they would pay no personal price if it ended in tears.

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

#66

Post by ceejayoz » Tue, Apr 07, 2020, 4:53 PM UTC

brockwhittaker wrote: post #48

ceejayoz wrote: post #10

Earlier quoted context omitted.

"Keep it in cash" isn't looking like such a bad idea right now.

Sure, but that still wasn't the best option. 1. We had the sharpest market drop in history . Models could predict this, but while this drop is say a 1 in 30 year event across all industries, this drop for certain sectors (like airlines) is more of a 1 in 100 year event. If companies all planned all the time for once in a century events, global growth would be much slower. 2. Most companies in most industries are stil…

United went bankrupt in 2002. Air Canada, 2003. US Airways, 2004. Northwest and Delta in 2005. American in 2011. This pandemic may be a once-in-a-century event, but "we're out of money" is not, especially for airlines.

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

#67

Post by tathougies » Tue, Apr 07, 2020, 4:53 PM UTC

dominotw wrote: 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?

It's the exact same thing as dividends, with slightly better tax implications (you can choose when to receive them, rather than be taxed whenever you do receive them).

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

#68

Post by blackguardx » Tue, Apr 07, 2020, 4:53 PM UTC

johnbrodie wrote: post #14

dominotw wrote: 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?

The most convincing argument I've heard is centered around just how much cash flow and expenses goes through the airlines on a daily basis, meaning they'd need some extraordinary amount of cash in the bank to weather something unprecedented like this. If they _did_ have that much cash, it'd be bad for the economy since that capital is effectively "locked up". Instead, give the proceeds back to the shareholders that w…

Cash in a bank isn't "locked up." The bank uses it to make loans. In a sense, it expands the supply of money because a bank isn't required to have 100% cash reserves. So $50 billion in bank accounts generates more than $50 billion in loans.

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

#69

Post by ComputerGuru » Tue, Apr 07, 2020, 4:54 PM UTC

AndrewBissell wrote: post #65

ComputerGuru wrote: post #25

Earlier quoted context omitted.

But it never was about making a return on profit. The solvency and economic growth enabled by these overnight loans (assuming it doesn’t cause bigger problems down the line) is absolutely worth it.

That's a completely different and opposite point to "the government made money on the bailouts, actually." > (assuming it doesn't cause bigger problems down the line) We're dealing with those bigger problems now, today. The moral hazard created by the 2008/2009 bailouts is a big part of why executives could leverage their companies to buy back stock throughout the 2010s with confidence they would pay no personal pric…

That’s “it made money on top of everything else, even though that wasn’t even the point,” meaning any money made is a bonus.

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

#70

Post by ceejayoz » Tue, Apr 07, 2020, 4:54 PM UTC

tathougies wrote: post #45

t0mas88 wrote: post #27

Earlier quoted context omitted.

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…

No. The right way is to issue 50B of stock back to the public. The shareholders who received 50B and are holding it in their personal emergency funds can buy it back, or new investors can. There's more than enough private capital available without requiring the government to step in.

It's unlikely the market holds $50B in demand for airline stocks right now. Sending their shares to zero isn't going to help.