Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

stamfordadvocate.com

Post reply on HN
Print view View original

131–140 of 164 posts

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

#131

Post by toomuchtodo »

whatok wrote: post #129
t0mas88 wrote: post #80

Earlier quoted context omitted.

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?

Because Saudi Arabia bought a lot of that equity. Not who I want being a majority (EDIT: s/majority/substantial) owner in my country's airlines if they need a bailout; have the US Treasury own them.

https://www.businessinsider.com/saudi-arabias-sovereign-weal...

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

#132

Post by AnimalMuppet »

sudosteph wrote: post #84

It's obvious that buy-backs are basically a hack for struggling companies to sacrifice long-time gains for short-term posturing. So what would a fair regulation around stock buy backs look like? We could make it illegal, but that seems like it would favor people who want to do corporate takeovers. Also, I've seen legitimate uses of stock buybacks, such as buying it back to give it as a grant to new employees. We coul…

> It's obvious that buy-backs are basically a hack for struggling companies to sacrifice long-time gains for short-term posturing.

No, I don't think that's obvious. Buy-backs are used that way, sometimes, but they're also used by companies that are doing well to return some money to the shareholders.

Why would they do that, when they could just issue dividends? I can see at least two reasons. First, dividends require one transaction per stock owner, whereas buying stock has much less overhead. Second, dividends create an expectation that you're going to continue to issue them, which is an expectation you may not wish to create.

Given that issue with your starting position, I don't think your conclusions are valid.

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

#133

Post by whatok »

toomuchtodo wrote: post #131
whatok wrote: post #129

Earlier quoted context omitted.

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?

Because Saudi Arabia bought a lot of that equity. Not who I want being a majority (EDIT: s/majority/substantial) owner in my country's airlines if they need a bailout; have the US Treasury own them. https://www.businessinsider.com/saudi-arabias-sovereign-weal...

That's incorrect. PIF's stake was as of 3/26 while CCL did the equity deal on 4/1. I don't know if they participated in that equity deal but they would have to disclose if they increased ownership. The equity deal was only $500mm vs $5.75bn in converts and 1st lien bonds. Non-insiders did not know PIF invested in the company when they raised this recent $ so it's not like that was some sort of anchor. Also, given their recent investments, PIF owning a significant stake in anything should make you run the other way.

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

#134

Post by tathougies »

ceejayoz wrote: post #124
tathougies wrote: post #72

Earlier quoted context omitted.

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.

I believe the 50B is for keeping everyone employed. That is what is fantasy. Most people ought to be laid off in these times. That is what unemployment insurance is for.

Of course, that's not politically popular, which is why the government is becoming involved.

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

#135

Post by anthonypasq »

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.

? The government is the public. Am i missing something?

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

#136

Post by adjkant »

ryeights wrote: post #108
treyfitty wrote: post #55

Earlier quoted context omitted.

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.

>they didn’t really choose to hold cash. I'm not sure what you mean by this, but if companies are going to hold large amounts of cash, it would be fiscally irresponsible not to seek the best possible tax treatment for it within the law. If people think it's inappropriate for companies to hold cash overseas, those concerns should be addressed towards lawmakers.

When the companies are the main lobbyists of corporate tax law, they effectively become judge/jury/executioner. You can say "Boycott Apple" but that's not really viable either for an injustice that is not seen by most as severe enough to give up something so centrally important to them. That importance should not give Apple a free pass to do any minor things they care to though, regardless of morality. These are not easy problems and for companies to throw their hands up to "well the law says X", especially as they lobby for X to stay, then IMO falls back morally on the company.

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

#137

Post by toomuchtodo »

whatok wrote: post #133
toomuchtodo wrote: post #131

Earlier quoted context omitted.

Because Saudi Arabia bought a lot of that equity. Not who I want being a majority (EDIT: s/majority/substantial) owner in my country's airlines if they need a bailout; have the US Treasury own them. https://www.businessinsider.com/saudi-arabias-sovereign-weal...

That's incorrect. PIF's stake was as of 3/26 while CCL did the equity deal on 4/1. I don't know if they participated in that equity deal but they would have to disclose if they increased ownership. The equity deal was only $500mm vs $5.75bn in converts and 1st lien bonds. Non-insiders did not know PIF invested in the company when they raised this recent $ so it's not like that was some sort of anchor. Also, given the…

I'll have to go through the disclosures before I speak more confidently about the recent equity activity in CCL, but PIF did very recently disclose they acquired 43.5 million shares, a 8.2% stake in CCL. This makes PIF their second-largest investor. This surely contributed in CCLs ability to do a rapid raise right after.

I corrected my terminology faux pax above.

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

#138

Post by andysandwich »

legitster wrote: post #95

I don't necessarily buy this argument - if they would have distributed their earnings via dividend, they would be in the exact same boat (maybe a little bit worse because of the additional tax on dividends). Keeping share prices up is an objective of executive compensation because it benefits the average shareholder. > The reason that I'm harping on share buybacks is that in theory, money for them is supposed to cons…

I'm not a financial expert, but there's a line in their 10-K's about how their loan agreements prevent them from paying dividends. I think that leaves buybacks as the only way of letting owners take profit from their earnings. Not sure why that's such a moral issue here?

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

#139

Post by nieve »

AnimalMuppet wrote: post #122
tynpeddler wrote: post #73

Earlier quoted context omitted.

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.

You should always be suspicious of claims by or about a company that they made no profit when they were able to throw billions at propping up their stock price. If it's true it's financial malpractice, but it's no more believable than the shenanigans of highly profitable megacorporations that somehow end up paying no federal taxes.

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

#140

Post by andysandwich »

nknealk wrote: post #96

Two thoughts: * there's a structured process for when a company can't pay its bills but is possibly viable in the long run if it can restructure its obligations called Chapter 11. The airline industry has tons of examples of companies that continue operations through chapter 11 proceedings and end up as profitable on the other side. I don't see why that process is suddenly off limits today. It would require equity ho…

The airlines also have plenty of access to credit, collateralized by their airplanes. The loan portion of the bailout, from my understanding, is contingent upon them using up all those lines (which they haven't, both Delta & United were each able to borrow $2B in March in preparation for the shutdown). E.g. United borrowed $2B from JPMorgan Chase https://ir.united.com/static-files/fafc24ea-c999-4dc7-b6b3-d...
Post reply on HN