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Most airlines face bankruptcy by end of May, industry body warns
- toomuchtodo 7y agoNon-paywall: https://www.marketwatch.com/story/global-airlines-face-bankruptcy-by-may-if-governments-dont-intervene-warns-aviation-consultant-2020-03-16 https://www.marketwatch.com/story/global-airlines-face-bankr...
- flatiron 7y agohttps://github.com/magnolia1234/bypass-paywalls-chrome-clean https://github.com/magnolia1234/bypass-paywalls-chrome-clean works great on ft.com
- bluGill 7y agoNo surprise. Anyone in a tourism industry is at risk. This is not a situation that will last long term so any tourism company that can avoid bankruptcy will come out okay in a few years, but airlines probably can't get there. The next airline all the employees of current airlines will start is as good an investments as airlines can be (airlines have historically been poor investments...)
- bluGill 7y agoI just realized I'm wrong about something that could be important: companies that survive might have to take on enough debt to do so that they are not able to compete will with new companies or companies that filed bankruptcy... Any sane airline is going to try to file bankruptcy of some form now to protect themselves from new competitors that come around. There is bankruptcy provision for not paying debts for a few months while your reorganize. If you are in a tourism industry you should contact a lawyer and figure out the pros and cons of what you can do now to protect yourself in the future.
- derefr 7y ago> This is not a situation that will last long term Why, then, can’t the airlines just issue bonds, like governments do in this situation? Large companies already do this to fulfill short-term dips (see https://en.m.wikipedia.org/wiki/Commercial_paper); https://en.m.wikipedia.org/wiki/Commercial_paper); this would just be the longer-term version. As long as the dip will predictably resolve, banks should be willing to secure the bonds.
- bluGill 7y agoThey have to pay them back - with what? Airlines are a low profit business - they have high cash flow, but low profit overall. Even if they do get the bonds now they will still go bankrupt over the next few years as someone else without that debt comes along and undercuts their fares. This problem has driven periodic airline bankruptcies over the past 40 years or so. (deregulation sometime in the 1970s for the US)
- dreen 7y agoCapitalism is definitely ill-suited to a crisis like this. We have an enormous production chain for anything we could possibly need and we could just use that. We worked for this for generations, but we have no easy way to divert this machinery to work differently for some time.
- adventured 7y agoThe way it would work is, Berkshire Hathaway with their $130 billion in cash would purchase Delta outright for pennies on the dollar. Berkshire can endure whatever reasonable length of time is required to get Delta back to spitting off $6 billion per year in operating income. Someone else with immense capital and assets would buy American Airlines (maybe Steve Ballmer or Larry Ellison would lean into that; Ellison likes airlines). Someone else would buy United, perhaps a major financial firm, private equity. Capitalism is not ill suited for this crisis. This is not the first time we've seen this. We had Capitalism in 1860-1870 and 1918 as well. What people didn't like about this process in the past, is the way it often consolidates economic returns further, it generates huge winners and losers (in a way that seems to most to be particularly predatory or unfair, as an emotional take), and society often feels taken advantage of by people with vast well-stocked fortunes. Don't confuse whether it would work with whether people like it or not. It works in fact and we've seen it multiple times in the past, we know exactly what happens: there are big winners (those that were prepared to take advantage) and big losers. Many people took vast economic advantage of the Civil War, not least of all by buying their way out of serving (hiring legal substitutes). Rockefeller for example did well in commodities at this time, prior to the Standard Oil days.
- claudeganon 7y ago> society often feels taken advantage of by people with vast well-stocked fortunes. Given that the rich will survive this with a dent to their fortunes, while everyone else is risking losing their house, jobs, health, and even lives, this isn’t a feeling, but the reality. If the outcome of this pandemic is Capitalism devolving into greater wealth concentration and inequality, and the consequence of that concentration is ever increasing precarity and material harm for everyone else, it is terribly ill suited for this and all other crises.
- JauntTrooper 7y agoDelta's stock has declined ~34% year-to-date through Friday. On Friday it was $38.36. It hit a low of $35.18 as recently as June 2016 though. It's an interesting data point on how much the stock market has declined so far.
- amiga_500 7y agoTime for the state to acquire some assets on the cheap, just like businesses do when other businesses go under. Should be nice and easy to hit pollution targets when the state owns all the airlines again.
- hannob 7y agoWarns? I'd say that's good news. Let them die and only recreate a downsized aviation industry that's compatible with limiting climate change, with the medium-term goal to switch it to alternative fuels.
- kjakm 7y agoThousands of people out of jobs at a time when they won't be able to get another one. Yes, that is good news /s
- cmckn 7y agoYeah, my partner just started climbing the ladder at a regional. I'm not seeing a silver lining in his career being flushed down the commode.
- beatgammit 7y agoIt certainly will suck in the short term, but I doubt long term demand for air travel will go down, so most should be able to be rehired at one of the airlines that remain.
- the8472 7y agoHaving a working ecosystem is required. Having jobs is not.
- Charlie_26 7y agoI 100% agree. This is a silver lining to Coronavirus. My fear is, these companies will get bailed out like the banks.
- bluedevil2k 7y agoAlternative fuels for airplanes?? I’m curious what you propose to haul 200 people across the Atlantic. Batteries? Solar?
- JumpCrisscross 7y ago> Alternative fuels for airplanes? Synthetic jet fuel can be out of atmospheric carbon. (Chemically, it's jet fuel. Just synthesized instead of being pumped out of the ground.) It's more expensive than the out-of-the-ground stuff. But a lot of the price premium is currently due to a lack of economies of scale. Airlines could go carbon neutral within a few years. Replacing the power plant is overkill.
- grecy 7y agoSo airlines profited around $28 billion in 2019 [1], but none of them thought to sock away money or do anything remotely forward looking or responsible in case of a downturn. On a global scale we're seeing the results of living irresponsibly - individuals that have been spending all their earnings without putting anything away for a rainy day, and corporations too. Of course, the government is going to bail out the enormous companies and leave the people to suffer through. [1] https://www.cnbc.com/2019/06/02/airline-industry-cuts-profit-outlook-cargo-business-hurt-by-trade-war.html https://www.cnbc.com/2019/06/02/airline-industry-cuts-profit...
- asdfman123 7y agoAirlines should pull themselves up by their bootstraps! Maybe they can find side jobs during this downturn. Have they considered doing part time food delivery?
- grecy 7y agoNo, I said nothing of the sort. I said they should have been putting money aside during the good years so they can weather the bad years. The fact they were not shows they're terrible at sustaining a long-term successful business, and they deserve to fail. Only well run future-looking companies will survive something like this. i.e. all those companies in Japan that have been around for eons.
- asdfman123 7y agoNo, your comment was spot on and I agree with everything you've written so far. I'm just mocking the rhetoric used to blame people who fall upon hard times.
- tathougies 7y ago> No, I said nothing of the sort. I said they should have been putting money aside during the good years so they can weather the bad years. Most companies would be correctly criticized for hoarding cash. Companies can also be sued for keeping too much cash on hand, as for example, is the case with apple.
- andr 7y agoI admit this is just a shower thought, but airlines could really help in the current situation by transporting sick people across the world (e.g. from Italy to China) to even out hospital demand.
- saas_sam 7y agoDo you think that might be hard to do given the content of the article you commented on?
- andr 7y agoThey would certainly be paid for their services.
- suprfsat 7y agoMakes sense, China currently has a shortage of global pandemic and Italy could stand to benefit by exporting it
- asdfman123 7y agoYeah, but no one wants a planeful of sick people being loaded up at their local hospitals.
- oarabbus_ 7y agoSounds more like a way to increase the spread of viral clusters.
- kirykl 7y agoGenerally if you're sick enough to need hospital care, traveling even by ambulance is a challenge
- tasuki 7y agoIsn't flying uncomfortable for everyone and dangerous for ill people? Dry air, pressure changes, limited space...
- ojilles 7y agoDon't think thats going to fly (pun intended). It's not dissimilar from some of the cruise ships that can't even go into an harbour?
- olivermarks 7y agoI highly recommend Matt Stoller's book 'Goliath' about the 100 year battle between US democracy and monopoly. Also his current newsletter 'big' which brings the book up to date for what is happening right now. https://mattstoller.substack.com/p/how-to-structure-the-coronavirus?utm_medium=email&utm_campaign=cta https://mattstoller.substack.com/p/how-to-structure-the-coro... Forget 'rainy day' funds - the vast majority of modern businesses are financialized ATMs to pull value out of massively leveraged assets to distribute to a tiny percent of humanity. Airlines are a good example of this. They'll get bailed out but hopefully there will be some guard rails put in place to prevent these funds going to pay for shareholder executive jets and yachts
- xaxsacsdaffbnk 7y agoThat's obvious bullshit, given that most modern businesses provide actual value to people. Like an airline: people can hop on planes and go to places, to do business or meet people. You can't do that with an ATM. ATMs don't fly.
- olivermarks 7y agoAll successful businesses provide value to succeed and survive, that's a given. The problem is that ever since the 80's junk bond era corrupt business people take over companies to load them with debt and extract financial assets.
- xaxsacsdaffbnk 7y agoAnd how does that supposedly work? Why do shareholders go along with it? And what is stopping people from creating businesses that don't do that? It sounds much like a conspiracy theory to me. The mysterious world of finance that everybody just know to be evil. I don't doubt that shady things happen. But there has to be a better explanation than "evil businessmen extract value". And how is it "extracting", when people get actual services in return? If I buy an apple at a supermarket, has the supermarket extracted money from me?
- extralegos 7y ago
- fxtentacle 7y agoOddly enough, all the European airlines that they mention are lowest of the bottom budget airlines. EasyJet, RyanAir, TuiFly all are famous for offering ridiculous prices like a €20 Hamburg-Barcelona roundtrip and then trying to recoup those ticket losses by charging through the nose for hand luggage, in-flight food, and by being very pushy in selling their duty-free goods. In my opinion, those airlines have always been operating at a loss while burning through investor money, so I am not surprised the least that they are still losing money.
- arethuza 7y agoRyanair has been pretty profitable? https://www.statista.com/statistics/756093/ryanair-net-profit/ https://www.statista.com/statistics/756093/ryanair-net-profi... Edit: As does EasyJet
- mhaymo 7y agoAnd EasyJet made £430m in profit last year. http://corporate.easyjet.com/investors/results-centre http://corporate.easyjet.com/investors/results-centre
- fxtentacle 7y agoI can't deny that they declared profits, but that doesn't necessary mean that they earned those in a sustainable way. And scraping the bottom of an already under-priced airline industry doesn't seem like a safe long-term bet to me.
- missedthecue 7y agoRyanair is an amazing business. In their 25+ year history, they've never issued debt or shares to raise capital. Thye've grown through cashflow alone.
- Sharlin 7y agoGood riddance. Cheap flying is utterly unsustainable and should never have become a thing.
- whatshisface 7y agoSetting aside for a moment the probability of extreme government intervention to maintain the status quo, what would the free market do about this? Letting the airlines fall apart because of a 6-month drop in sales seems like a senseless destruction of value. Would investors band together to keep the planes and pilots around until ticket sales came back? Is debt the answer? Bankruptcy?
- chinathrow 7y agoThe planes will be kept around, they won't vanish that quickly. They will be sold for cheap to the other/new airline, as it happened before with other collapses within the airline industry.
- ken47 7y agoThis is what bankruptcy is for. I strongly recommend you read a primer on corporate finance, but the gist is that creditors have first dibs on assets in a bankruptcy (and there may be multiple tiers of creditors), and shareholders usually get wiped out. The tradeoff is that when times are good, shareholders can gain far more than creditors. Now, if creditors really believe that the bad times will only be short-term, the credit markets may refinance the debt, or allow the airlines to issue more debt to cover the existing debt, allowing airlines to avoid bankruptcy, assuming that good times return in a timely fashion, as predicted / hoped. If creditors believe that the bad times will last for the long-term, they can force bankruptcy, and then liquidate the assets in the hopes of recovering as much of their original investment as possible. As mentioned before, shareholders would get wiped out. You said that this would be a "senseless destruction in value," but it's really not that simple. As an example, perhaps the proceeds from the sale of an airline's assets can be invested into promising treatments for COVID. Or perhaps the creditors have debts of their own to repay, and by liquidating the assets of an airline to cover their debts, they prevent a cascade of defaults that could take out an outsize portion of the economy. So it's not actually clear that the net effect on the economy would be a "senseless destruction in value."
- DoreenMichele 7y agoThere aren't a heckuva lot of dirigibles in the world. There aren't a heckuva lot of Viking style rowed ships, though they had a brilliant design compatible with both ocean travel and river travel. Things change. New things often don't show up until the old thing has died. The world existed for a long time before we had airlines. It won't cease to exist if many of them go out business. I haven't flown in years. Lots of people would like to see people stop flying because it's hard on the environment. This is potentially an opportunity to see something better rise from the ashes of a suddenly dying civilization that the world has long decried as unsustainable anyway.
- dchyrdvh 7y agoRemember how somebody wanted to reduce air pollution, close factories and end air travel? This is what it looks like.
- ty_34235 7y agohttps://www.nytimes.com/2020/03/16/opinion/airlines-bailout.html https://www.nytimes.com/2020/03/16/opinion/airlines-bailout....
- deleted 7y ago[deleted]
- stretchwithme 7y agoI am ok with putting these airlines on life support until things get back to normal, but ONLY if airlines are required to get insurance or build a rainy day fund to handle similar future events. And only if shareholders and bondholders are not bailed out. There are risks in this business and lenders and shareholders should have already taken that into account when they make their decisions. It's not the job of government to handle these risks. We need to keep this industry going but also start to be more responsible about risk. And that will mean moderately higher ticket prices.
- fxtentacle 7y agoFYI related Bloomberg article: https://www.bloomberg.com/news/articles/2020-03-16/u-s-airlines-spent-96-of-free-cash-flow-on-buybacks-chart https://www.bloomberg.com/news/articles/2020-03-16/u-s-airli...