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

#111

Post by magduf » Tue, Apr 07, 2020, 5:09 PM UTC

czbond wrote: post #56

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…

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.

Sounds good to me. I'll bet there's some Chinese airlines that would like to expand their operations and have the cash to do some buyouts.

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

#112

Post by tathougies » Tue, Apr 07, 2020, 5:10 PM UTC

yzmtf2008 wrote: post #75

tathougies wrote: post #45

Earlier quoted context omitted.

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.

> There's more than enough private capital available without requiring the government to step in. If that were true, the price wouldn't have tanked so much?

They haven't issued shares yet so we can't know

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

#113

Post by frompdx » Tue, Apr 07, 2020, 5:10 PM UTC

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…

> who the hell could have predicted the world was going to shut down like this in 2015-2019

Market downturns tend to happen at semi-regular intervals. It's been 12 years since the last one.

> People make it sound like they were buying back their stock as they were cutting flights and laying off employees.

No but airlines were absolutely cutting the quality of their services. They bought back stocks at the expense of passenger comfort. Anecdotally, from 2015-2019 each flight I took was less pleasant than the last. When I travelled in the summer of 2019 our flight did not have vomit bags. Guess what? Two passengers vomited on the approach. All over the seats. Speaking of the seats, they were so uncomfortable that I actually injured my back as a result of sitting in them.

> 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.

It is absurd under the incentives that business operate under. It's also absurd that businesses can operate until the point of bankruptcy, stranding passengers like what happened when Thomas Cook went under last year. https://www.nytimes.com/2019/09/23/travel/thomas-cook-airlin...

> I really hate that this argument keeps popping up.

I think the reason this keeps coming up is because regular people are feeling extremely frustrated at the moment. Average people are told they should save for a rainy day. I did and now I have the privilege of spending down my rainy day fund while the airline industry expects a handout for not doing so.

> The reality of the situation is that these airlines employ a lot of people and enable even more commerce and economic activity through their operation. You can disagree with a bailout all you want, but if they go under, the economy most likely suffers by a lot more than $50B.

Perhaps some of the impact can be mitigated by taking a portion of $50B and putting it in the pockets of the employees who will lose wages instead?

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

#114

Post by tathougies » Tue, Apr 07, 2020, 5:11 PM UTC

t0mas88 wrote: post #80

tathougies wrote: post #45

Earlier quoted context omitted.

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.

The public currently wouldn't buy the stock due to bankruptcy risk. If the government commits to buying what's left at the same terms the public would start buying as well reducing the burden on taxpayers. Historically this kind of deal has been profitable for governments in the cases that I know of (in banking), while at the same time keeping more jobs and thus reducing economic impact of unemployment.

Oh i have no doubt the government will make money from this. I was saying what i thought the right way to finance this is. You say the gov will make money -- certainly true. It would be much better for the airlines to issue to the public though so the public can make money

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

#115

Post by ryeights » Tue, Apr 07, 2020, 5:11 PM UTC

dmazin wrote: post #71

ryeights wrote: post #29

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.

Speaking for myself, when I say that I wish companies spent more of their warchests, I mean investment, not buybacks.

Then you have an Amazon scenario, where people complain that companies pay low or no taxes because they are reinvesting their revenue.

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

#116

Post by soneil » Tue, Apr 07, 2020, 5:11 PM UTC

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…

It doesn't help us much now, but I think there is a strong case for expecting them to build up a warchest. American, Delta, and United have all had bankruptcies before, so we know they're not invincible. 9/11 hit them hard in 2001, the Icelandic eruption hit them hard in 2010 .. Airlines are fragile, and I think it's time they started building their own safety nets.

That doesn't mean that this time we should let them sink, but perhaps there do need to be some strings attached. Airlines do just lurch from one crisis to the next, and we can't afford to lurch from one bailout to the next with them - else we may as well nationalise them.

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

#117

Post by tathougies » Tue, Apr 07, 2020, 5:12 PM UTC

sgift wrote: post #103

tathougies wrote: post #52

Earlier quoted context omitted.

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.

You could always limit it to companies that can show the money which would have been used if there was a limited decline in business. Separate the ones who did indeed behave responsible and were caught by this extraordinary event from those who bought back stock without thinking about tomorrow.

Clearly all of them were prepared for some contingency given that they are still in business several months after a drastic decline in demand for flights.

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

#118

Post by sanderjd » Tue, Apr 07, 2020, 5:13 PM UTC

adjkant wrote: post #19

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. Increase pay/benefits to your rank and file employees for helping you get so much cash 5. Invest back in the business at reasonable levels so as to keep enough cash for an emergency fund 6. Focus on improving world impact through starting philanthropic activities

Option 4 is clearly a good one, more companies should pay dividends to employees in addition to (or instead of) shareholders. Employees have a stake in the company and the usual way of doing this (by giving employees stock so that they get the same benefits as shareholders do) doesn't align risks well. These are called bonuses, and yeah, big companies should pay more bonuses when they are performing well. I'm all for any company that does that and any policy that incentivizes it.

But I'm a lot less convinced by your other two points.

I'm sure the airlines did keep enough cash for an emergency fund, but every emergency fund comes with a model of what an emergency looks like, and for airlines what makes sense to cover is things like oil price increases or a recession that impacts demand for travel by a few percent, not an event like this that results in a 95% decline in demand due to government mandates; we don't want every large corporation hoarding a hundred billion dollars in cash, we want that cash available to invest elsewhere.

And I don't really want corporations to be major leaders of philanthropic activities. Why them? Who are they accountable to? Why should I expect them to support good causes? I would rather see that money in the pockets of individuals who can decide what philanthropy to support, or in the pockets of a government whose philanthropy is accountable to voters.

The (flawed, but not entirely) idea of buybacks and dividends is that they also achieve the function of getting cash out of the hands of big corporation managers. When that cash ends up just sitting in another bank account of a rich person (or in a yacht) that is a shame, but it is its own problem for which there should be different solutions, but when that cash ends up flowing into other investments, that is much better than it sitting in the bank account of an already-huge corporation or being funneled into doomed business lines outside that company's area of expertise.

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

#119

Post by adjkant » Tue, Apr 07, 2020, 5:15 PM UTC

brockwhittaker wrote: post #77

adjkant wrote: post #19

Earlier quoted context omitted.

4. Increase pay/benefits to your rank and file employees for helping you get so much cash 5. Invest back in the business at reasonable levels so as to keep enough cash for an emergency fund 6. Focus on improving world impact through starting philanthropic activities

> Increase pay/benefits to your rank and file employees for helping you get so much cash The auto industry did this through high wages and very large pension plans, and got absolutely destroyed in '08 and also demonized by taxpayers for creating an undeserving "welfare class" of autoworkers that was too expensive to maintain. > Invest back in the business at reasonable levels so as to keep enough cash for an emergenc…

> The auto industry did this through high wages and very large pension plans, and got absolutely destroyed in '08 and also demonized by taxpayers for creating an undeserving "welfare class" of autoworkers that was too expensive to maintain.

I'm not sure I'd be making long term business decisions based on how reactionary people are to things after a crisis. I also don't think you're going to hear the argument that the reason the auto industry failed was because they were paying their rank and file workers too much...

No one said use it all either, this is a balancing act, just as using up most of your free cash to buy stock back probably isn't a good long term idea either.

> What if you feel like any further investment yields negative return? Why purposefully throw money into a black hole?

First, yielding negative return and throwing into a black hole are two very different things. A negative return can either create more jobs for people, perform a social good, or help in some other way beyond raw return. Businesses of the scale of having billions in cash siting around are not going to run out of ways to improve their business efficiency.

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

#120

Post by sanderjd » Tue, Apr 07, 2020, 5:18 PM UTC

peterbraden wrote: post #11

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…

Traditionally you also have dividends as well. Stock buybacks are basically tax avoidance.

Yeah what I keep not being sure of with this whole debate is: are people mad about companies using buybacks instead of dividends because of the tax avoidance angle, or are they mad at the entire idea of companies giving back money to shareholders either way? It seems like buybacks are the boogeyman, but that an argument like "if they had kept their $45B over the past few years, they wouldn't need $50B now" applies just as well to dividends.