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

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

#91

Post by [deleted] »

chasing wrote: post #50
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…

> 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. Maybe a smart airline should. Because people have been issuing warnings about a possible pandemic for many years. A business that operates as if it's always going to be sunshine and rainbows is not a properly run business.

[deleted]

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

#92

Post by asdfadsfgfdda »

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 doesn't seem significantly different from issuing a dividend, both return money to investors. But a buyback allows investors to defer taxes.

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

#93

Post by brockwhittaker »

starlust2 wrote: post #26
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…

How about being prepared so that you don't need to be bailed out by the federal government? How about spending that money to provide better service? It's not a revisionist history that virtually everyone complains about the declining level of service and increased fees.

You could also look at it the other way (the correct way):

Service hasn't declined in airlines. If you spend the same on a ticket today as you would have had to in the 1970s to fly, you receive better service. That's because you'd have to be flying first class.

We just decided over time that we were only willing to pay at most $200 to fly across the country round trip, yet still romanticized the idea of having a great experience while doing so.

Keep in mind that of the $200 ticket price, about 30% usually goes to fees and taxes; not airlines. You should be grateful a system so robust exists. One that can take you across the country for such an incredibly low price, given that your only alternative is to drive across the country or take a train; both taking an order of magnitude more time and cost an order of magnitude more.

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

#94

Post by Symbiote »

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?

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 affect travel behavior

> In particular, an outbreak of a contagious disease such as the Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, avian flu, Zika virus or any other similar illness, if it were to become associated with air travel or persist for an extended period, could materially affect the airline industry and us by reducing revenues and adversely impacting our operations and passengers’ travel behavior.

https://americanairlines.gcs-web.com/node/37211/html#s1E0EED...

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

#95

Post by legitster »

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 consist of cash that's surplus to the companies' needs. But in the real world, companies frequently borrow money to help fund buybacks. That works great to prop up their stock prices - until one day, there's a problem.

I've been told by corporate accountants that this is a huge misunderstanding of how corporate finance works. Companies borrow money all the time for everything, because sitting on cash is the equivalent of slowly losing it.

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

#96

Post by nknealk »

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 holders (and likely some liability holders) to take a haircut, but I'd argue investors knew the risks they were taking given the history of the airline industry.

* if the $45B was returned to shareholders in the form of dividends, would that be somehow less evil? I keep seeing articles citing share buyback numbers, but the whole point of publicly traded companies is to return capital to shareholders.

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

#97

Post by jldugger »

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?

Stock buybacks are touted as a tax efficient means of providing returns to shareholders as capital gains. The other option being a dividend. If you don't think dividends are evil then you shouldn't have too much problem with buybacks.

The argument against buybacks are that they aren't very efficient -- CFOs tend to buy back when the stock price is high, and that it rewards people for not holding shares.

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

#99

Post by basch »

opo wrote: post #42
ComputerGuru wrote: post #2

Just remember that the Federal government ended up making money on the automaker and bailouts (quite apart from all the jobs that were saved).

>Just remember that the Federal government ended up making money on the automaker ... The estimates I've read are that the federal government lost between 9 and 10 billion on the automaker bailouts. For example: >...In the end, taxpayers lost $10.2 billion. https://www.thebalance.com/auto-industry-bailout-gm-ford-chr... >...the U.S. recovered all but about $9 billion of the auto bailout money. https://www.marketplace…

Luckily they diversified their bailouts, and made $121B so far.

https://projects.propublica.org/bailout/

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

#100

Post by basch »

ceejayoz wrote: post #82
opo wrote: post #42

Earlier quoted context omitted.

>Just remember that the Federal government ended up making money on the automaker ... The estimates I've read are that the federal government lost between 9 and 10 billion on the automaker bailouts. For example: >...In the end, taxpayers lost $10.2 billion. https://www.thebalance.com/auto-industry-bailout-gm-ford-chr... >...the U.S. recovered all but about $9 billion of the auto bailout money. https://www.marketplace…

The automaker bailouts were part of a much larger overall program, that did make a minimal profit. https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program > TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6% and perhaps a loss when adjusted for inflation.

Altogether, accounting for both the TARP and the Fannie and Freddie bailout, $634B has gone out the door.

Money has been coming back in two ways: $390B of principal has been repaid, and the Treasury has collected revenue from its investments of $364B.

In total, the government has realized a $121B profit as of March 19, 2020.

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