Almost all major airlines in the world are receiving government bailouts: France, Germany, UK, Japan, Sweden, HongKong, UAE, Singapore. The airline industry is a notoriously cut-throat industry with lots of protectionism from nations, one can't just expect US airlines to sit on $50B cash and not put it to work.
U.S. airlines want a $50B bailout. They spent $45B buying back their stock
121–130 of 164 posts
Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock
#122I 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…
In addition to all the other issues that people have brought up, the most important thing to remember is that the airline business is extremely cyclical. They know that there are always bad times around the bend. Their total lack of preparation is what's so galling. The management at these companies is simply unfit when they so routinely ignore the history of their own industry.
I seem to recall that total profits for the (US) airline industry from 1960 to 2010 was $0 (dates may be incorrect, but the general timeframes are correct). It's all just bankruptcy, merger, restructuring, and repeat.
Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock
#123Earlier 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…
"Keep it in cash" isn't looking like such a bad idea right now.
If that is the lesson that businesses learn from this, the recession after this will last a lot longer than it needs to, as companies hoard more emergency cash than they need, instead of it flowing through the rest of the economy. A better solution is to cover higher likelihood emergencies and for governments to step in (as they are doing) for very rare emergencies like this one.
Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock
#124Earlier quoted context omitted.
It's unlikely the market holds $50B in demand for airline stocks right now. Sending their shares to zero isn't going to help.
I've been loading up and I imagine many investors are.
American, Delta, Southwest, and United have about 60% of the US market. They have a combined market cap of about $45B.
The idea that the airlines could issue $50B in shares is a fantasy.
Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock
#125Having 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 surviv…
> Perhaps it is time to apply some of these methods to other industries that might only survive with a taxpayer bailout
I feel as though the problem here is that we can't survive losing some of these companies. "Too big to fail" is the problem. There's so little diversity in these ecosystem that losing one company is an economic disaster.
Maybe the regulations around these sorts of things ought to just apply to any company that represents more than X% of a given industry, or any company worth more than Y% of the entire stock market. And these don't even have to be big X and Y values. If you're that big, you've grown beyond being just a simple company and you've become an integral part of society that must remain functional.
Go even further: tax those companies that meet these standards an extra small amount, and then reduce the taxes of their smaller competitors by the same total value. Incentivize competition to increase the diversity, so that there aren't many companies we can't afford to lose.
Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock
#126I 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 keeps popping up because it's very likely a bad idea and should go back to being illegal (which it was until relatively recently) because it artificially pushes up prices, https://www.bloomberg.com/opinion/articles/2019-07-24/stock-....
Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock
#127I 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.
"It is good to kill an admiral from time to time to encourage the others." It is good to destroy incompetent, short-sighted management from time to time, to caution the others.
Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock
#128Earlier 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
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…
> 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.
I would agree that an emergency fund likely would have still run out in this scenario, but I don't think that invalidates the idea of investing back in the business does it? It's just more that the caveat is debatable / easier said than done.
> 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.
Honestly fair point, I agree generally with who is allocating. I guess the question is how do you execute getting it in the hands of individuals or government for philanthropic purposes though? I wouldn't actually mind seeing a system for that where you can pay into a government controlled philanthropy fund that voters help allocate on ballots during voting but that type of system doesn't exist now, and getting it to individuals is typically limited to your employees which then just turns this into option 4 but with the likelihood that they money goes into other businesses instead of the original intended purpose.
This whole thing could just be a poll on the website or a matching campaign that customers engage with where they choose from a wide variety of sources. That's a major philanthropic activity by the business but then not allocated by the business itself, assuming the options are sufficiently ranging.
Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock
#129Earlier 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.
If the public wouldn't buy airlines stock because of "bankruptcy risk" then why was Carnival Cruise Lines able to raise more than $6bn in debt and equity recently?
Re: U.S. airlines want a $50B bailout. They spent $45B buying back their stock
#130I 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? The people American Airlines employ to predict future risks to the business. Their SEC filing: > Our business, results of operations and financial condition have been and will continue to be affected by many changing economic and other conditions beyond our control, including, among others: > • outbreaks of diseases that affe…
It's very predictable that we'll have major market downturns for various reasons every 10 or 20 years because of history. If you are 25 years old you've lived through 3. I'm older and I've lived through 5 or 6, depending on how you count.