15 ms·

People seem to forget that when a business goes under, there's still something left. If an airline goes down, the planes are not immediately turned to dust. Th

People seem to forget that when a business goes under, there's still something left. If an airline goes down, the planes are not immediately turned to dust. The pilots and ground crew do not forget how to fly and maintain aircraft. What happens at bankruptcy is that the claims on various assets are reassigned. The planes will get sold to someone who reckons they know how to run an airline, and the staff are likewise hired by new businesses. This is worth keeping in mind when considering bailouts, because they tend to keep things in the hands of the same people, sometimes even on not much worse terms. And that's despite having steered the firm into the ground. Don't forget there's value in this sort of reassignment. Assets and labor get moved around in new configurations that might be better.

asdfasgasdgasdg 7y ago
It's true that not all of the value is destroyed, but it is still very inefficient compared to a well functioning business. Whether it's less efficient than bailing folks out is I think an open question. Maybe with a case-by-case answer.
- chris_wot 7y ago
  Sure, compared to a well run business. I think the point is they aren’t well run.
  - asdfasgasdgasdg 7y ago
    I don't know. I don't necessarily think it's efficient for businesses to keep cash on hand for weathering events of a magnitude that have literally never happened in the history of their industry. I think that's a little too conservative and people would not like the drag that imposes on the economy if the rule were to be applied universally. I don't think it's a sign of poor management that the airlines did not foresee the possibility their whole industry would be entirely shut down for a year or more.
    - untog 7y ago
      I don't think we need to apply absolutes here. It can be true both that it would be very difficult for airlines to keep cash reserves to cope with an event of this scale and that keeping essentially zero cash reserves (in fact, American has been borrowing like crazy) is absolute negligence. If airlines are considered essential enough to the functioning of the country that they must be bailed out, they should also be run in a way that reflects that importance to society.
    - lordnacho 7y ago
      And yet, it is not the point that management/owners could not have foreseen this, and so do not deserve to have the company go under. Even if the company goes under, there will still be airlines afterwards regardless of who owns them. Should we all pay to keep the ones that happen to be there, or let new players have a go? Dinosaurs didn't hedge themselves either, in terms of evolution. But life went on anyway, and mammals dominate now.
      - asdfasgasdgasdg 7y ago
        I'm not knowledgeable enough to know which is best. Is it more efficient for these companies to go under, and for luckier rivals to buy their assets and consolidate? Or is it more efficient for the government to provide capital (for some consideration of course) and smooth out the dip? Whichever leads to better outcomes is what we ought to do. I'm not a pure capitalist. I don't subscribe to the theory that market forces always lead to optimal outcomes. As such I don't buy the notion that bailouts are always the wrong decision.
        luckylion 7y ago
        > Whichever leads to better outcomes is what we ought to do. The question is: better for ... the shareholders? The tax payers? The environment? The pilots? The passengers? The airline managers? You'll find that "better" is often at odds for different groups.
    - mLuby 7y ago
      For low frequency, high impact events there's a thing called insurance. The problem is exemptions—like "Acts of God"—which I think should generally be illegal. Higher premiums suck but they'll accurately account for risk (which now goes uncovered).
  - sdenton4 7y ago
    Giant asteroid extincts a bunch of species... Sure, the now vanished mega fauna were not adapted to asteroids. But as a once in a hundred thousand years event, it doesn't mean they were otherwise unfit.
    - rriepe 7y ago
      They were unfit because a giant asteroid is as much a part of the environment as anything else.
      - asdfasgasdgasdg 7y ago
        I question whether it is possible to be "fit" in this analogy, or just lucky. Also, let's not forget that "fitness" and "conformance to our values" are separate dimensions. It is not necessarily the case that we humans want to optimize companies for their ability to withstand once in ???? year events without government assistance. Companies optimized along such criteria would be more fit for an environment where government assistance doesn't exist, but crucially that is not necessarily the actual environment that companies exist in in the real world. And it is not obvious to me that the citizenry benefits from companies optimized that way.
        rriepe 7y ago
        It's a good analogy because fit and lucky are hard to tell apart in evolution too.
        PBnFlash 7y ago
        Homogeneity leads to effecency and hedrogeneity leads to resiliance. The stability the fed provides allows them to do what they want in hugely optimized and complex ways, it just turns out what they want to do doesn't align with the interests of the population sometimes. I don't think they would be any less likely to do what they are doing they would just do it less effecently. The fed doesn't want to use the stick anymore, and business gets a carrot when it throws a tantrum. The insentives are perverse.
    - 7y ago
sh0ckngn3wz 7y ago
Turns out it’s valuable to foster an intuition for how the world we have to navigate literally every day works? I’m shocked. Welp, let’s climb back into our ideology for 8 hours.
rmrfstar 7y ago
Unfortunately the bankruptcy process is extremely slow and costly. A lot of built-up value like institutional knowledge is destroyed. Bailing-in creditors and diluting shareholders is fast and cheap by comparison. This is particularly true when the business is likely to continue operations similar to those in place at the time of insolvency. Bankruptcy works for Theranos or Pets.com, but not so much for airlines in 2020.
- lordnacho 7y ago
  > Bailing-in creditors and diluting shareholders is fast and cheap by comparison. I agree, whether the planes go through bankruptcy to a new player or the old ownership is radically changed, it allows to things to take a different course. With big dilution you can imagine the new owner essentially having bought the business before bankruptcy.
atomi 7y ago
We could also nationalize the airline industry. We've already seen how capitalism alone is a poor predictor of future demand. And while we're at it, let's make the internet a utility.
- kazagistar 7y ago
  And like, in this case, it's not even a violation of capitalistic principals: if you need money from investors, you sell shares and ownership to investors, and in this case the investor is the people as represented by the government. If you make risk public, then profits should be public too.
  - not_exactly__ 7y ago
    Except in airlines there are almost no profits :)
    - chillwaves 7y ago
      http://news.aa.com/news/news-details/2019/American-Airlines-Group-Reports-Third-Quarter-2019-Profit-CORP-FI/default.aspx http://news.aa.com/news/news-details/2019/American-Airlines-...
    - grecy 7y ago
      Airlines profited around $28 billion in 2019 [1]. If they were publicly owned, the prices of flights would just go down until there was no profit. Also, the CEOs wouldn't be paid tens of millions of dollars per year [2], so again, prices would go down. [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... [2] https://skift.com/2019/05/29/united-wont-pay-munoz-a-full-bonus-airline-ceo-pay-2018/ https://skift.com/2019/05/29/united-wont-pay-munoz-a-full-bo...
      - refurb 7y ago
        Publicly owned doesn’t mean non-profit, it means government ownership. There are plenty of public companies who post profits. And even if we were to make airline public, wed just be reversing the trend over the last few decades. There is a reason why so many nationalized airline went private, the government kind sucks at running businesses (not always, but often).
clairity 7y ago
> "bailouts ... tend to keep things in the hands of the same people" yes, this is the crux, a gross unfairness. common folks get harsh punishments, while financiers and corporate executives get away with major thefts and get to keep the fruits of their transgressions. i'm all for harsher punishments for actions that lead to greater damages to more lives (in this case, taking a little bit from lots of people). with greater power must come even greater responsibility. tear up the corporate veil. and let's be vigorous in reassigning assets so as to support a functioning market for better management.
- rmrfstar 7y ago
  There is a middle path, where creditors are converted to shareholders and shareholders are massively diluted. Effective control of the company will be placed in the hands of people who re-capitalize the company, and they will definitely not let the old management stick around. Relative to bankruptcy, this has the benefit of allowing the company to continue operating. It also deters future recklessness. Probably should have happened in 2009, but didn't.
  - extralegos 7y ago
    Great point, and very relevant to 2009, wherein the automakers would have likely not been replaced by American companies. But, in the case of United States airline companies, they would very likely be replaced by other American companies if they were not adopted by the creditors.
    - dantheman 7y ago
      Foreign airlines are not allowed to provide domestic routes.
  - ace32229 7y ago
    It did happen in the UK. Banks that took bailouts traded shares for cash with the Treasury (this is a layman's understanding at least). RBS notably became 84% publicly owned. The real scandal is the government selling back the shares for less than they paid for them (when RBS was on the brink of collapse).
chillingeffect 7y ago
iiuc, these assets are valued at approx 10% of the previous value. while materials such as aluminum do not rapidly decline, their meta-information does: for airlines: certifications, inspections and other legal requirements. in other businesses assets are perishable. basically a lot of momentum is lost.
badrabbit 7y ago
Yeah, but the point is not to save the airline, it's to prevent a cascading effect. Not that i support thid bailout one bit. Unlike 2008 i don't see airlines going under cascadig beyond US regional commercial flights not being available for a few months. Cargo will be fine, anything international will be fine.
bluedevil2k 7y ago
This is not what would happen in a bankruptcy in the airlines industry. They would file for Chapter 11 which lets them re-negotiate with creditors instead of having to liquidate everything. Who are the creditors? Pilots union, flight attendant union, etc. Sometimes the airlines don't own all their planes, they lease them from a holding company. The airlines would say "take an 10% haircut on benefits the next 5 years or else we will liquidate and you'll get nothing". Then they'll re-emerge from bankruptcy with a healthier balance sheet with future liabilities lowered and a better cash flow.
- ntsplnkv2 7y ago
  Pilots aren't easily replaceable and you need a certain amount of flight attendants minimum for every flight. Clearly a strike would be effective - look what's happening now. They barely can handle 1 month without asking for a bailout. Even more so in an economic recession. Let them liquidate. It's no different than before.
candybar 7y ago
Sure there's value in this sort of reassignment but what usually happens in that case is: 1) Private equity acquires the assets at bargain basement prices and proceeds to squeeze out whatever profits they can. One of the most common ways this is done is by laying off staff. 2) A competitor buys them out, leaving less competition. Also followed by a large layoff to reduce redundancies. 3) The business is reorganized to maximize short-term efficiency, regardless of the cost to others - customers, partners and society at large. These aren't bad outcomes per se, but I suspect that those that are reflexively against corporate handouts wouldn't be happy about these either. The general point of an industry bailout is to avoid outcomes like this since in crises, these can add to the pain. The actions taken to ensure your own company is financially solvent are often counterproductive if they are all taken by all parties involved. And various markets involved - whether in terms of labor or capital - are also likely not functioning efficiently enough to absorb the resulting dislocations. And typically bailouts are not great outcomes for the shareholders involved. Bailouts can be great for the management, but only to the extent that it's also great for most employees. As long as the shareholders (and creditors to a lesser extent) take a big cut, there isn't a huge moral hazard either.
linuxftw 7y ago
Remember, you're not actually bailing out the airlines, you're bailing out the banks that loaned them money. The banks always, always win.
hogFeast 7y ago
Can tell you don't have much experience of bankruptcy. Okay, airlines go bankrupt...presumably, airports go bankrupt too...simple, the various assets are "reassigned"...true. One big problem: if an airline is bankrupt, what airport is going to give them a slot? I can tell you: no airport, because they will lose that money in bankruptcy. Likewise: what airline will land at a bankrupt airport? Again, no airline. What you are saying is that we should stop all flights into and out and within the US for a period of months (probably years) whilst these cases go through court (and it will probably take years)...is that realistic? Likewise, you appear not to realise how difficult it will be to fire millions of staff and rehire them at other companies. Bankruptcy is neutral in terms of assets, it is not neutral in terms of cost...it is very very very costly. This isn't a hard problem. You are completely wrong that bailouts "keep things in the hands of the same people". This is what largely happened in the US...because the US led insolvent companies go bankrupt (mostly but not always i.e. Fannie/Freddie) most of the companies that were "bailed out" weren't insolvent. But, irregardless, it is very easy to create a package that forces losses...very very easy. I agree with you. Companies that gorged on debt should be punished. It is very easy to do this with new equity issues, preferred issues, etc. without bankruptcy. This should only be, however, for companies that have substantial net debt positions (where I am, one or two airlines were buying back shares but they had/have net cash positions...the issue isn't repurchasing shares, that is just a tax-efficient return of capital, it is being under-capitalised and expecting someone else to capitalise you for free).
- dmurray 7y ago
  > One big problem: if an airline is bankrupt, what airport is going to give them a slot? I can tell you: no airport, because they will lose that money in bankruptcy. Likewise: what airline will land at a bankrupt airport? Again, no airline. Why would both of these be true? Normally you don't want to sell to a bankrupt customer, or at least you don't give them credit. But you would definitely buy from a bankrupt supplier if they have something you need. Some airports pay airlines, but mostly the cash flows the other way, so the airline should be happy to land at the bankrupt airport.
  - hogFeast 7y ago
JamesBarney 7y ago
Most companies are worth far more than the value of their assets. Take Google or Microsoft for instance. If either of these companies were split apart, and the assets were sold at auction how much would those assets be worth compared to the market cap of the company?
- Miraste 7y ago
  That seems non-comparable. Google and Microsoft have a lot of value in IP and mindshare, plus various monopolies. American and Delta (for example) are 100% fungible.
js8 7y ago
> What happens at bankruptcy is that the claims on various assets are reassigned. The planes will get sold to someone who reckons they know how to run an airline, and the staff are likewise hired by new businesses. Alternatively, it would be possible to create a worker cooperative from the failing business. The managers who created the mess would be ousted and the actual employees could decide what to do with the rest.
- berryjerry 7y ago
  if the workers want to buy the stock up while it's cheap or bankrupt then why not? The whole point of a bankruptcy is that the company literally is worth less than zero.. Whoever buys it would owe the bank a ton of money and have to pay the bank out of their own pocket until they become profitable. Workers are free to do that, but if no one wants to do that, then the bank steps in and takes ownership.
jdsully 7y ago
You do lose the inherent value in the organization. Planes and humans don't create value on their own they have to be organized into a system. That system falls apart when a company is sold off for parts. Sometimes it makes sense if the organization is dysfunctional, but being a victim of a worldwide economic shutdown is not what I would call dysfunctional.
- deleted 7y ago
  [deleted]
- csomar 7y ago
  > You do lose the inherent value in the organization. Planes and humans don't create value on their own they have to be organized into a system. Isn't the problem in that system itself, and thus the collapse of that particular system is a net-benefit. A better run company will absorb these sell-offs and reassign priorities.
  - atq2119 7y ago
    If they're collapsing due to a massive external event, the answer is no. If part of the blame is to be assigned in the decision to do share buybacks over the course of many years, then the people responsible for that decision need to be held accountable (personal gains clawed back etc.).
mnm1 7y ago
Seriously. All the talk about markets this and that but when the market acts and these companies go bankrupt mostly because of their own incompetence, it's time for a bailout. It's absurd. Either you let the market run its course or make this available to everyone. If United can get a bailout small businesses should too so neither should fear bankruptcy. If that's not palatable, then let all these businesses fail. That's part of the system and it seems to be there for good reasons.
llcoolv 7y ago
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks. There is a way out of this joke. Keep your heads up and don't give up.

asdfasgasdgasdg 7y ago

It's true that not all of the value is destroyed, but it is still very inefficient compared to a well functioning business. Whether it's less efficient than bailing folks out is I think an open question. Maybe with a case-by-case answer.

chris_wot 7y ago
Sure, compared to a well run business. I think the point is they aren’t well run.
- asdfasgasdgasdg 7y ago
  I don't know. I don't necessarily think it's efficient for businesses to keep cash on hand for weathering events of a magnitude that have literally never happened in the history of their industry. I think that's a little too conservative and people would not like the drag that imposes on the economy if the rule were to be applied universally. I don't think it's a sign of poor management that the airlines did not foresee the possibility their whole industry would be entirely shut down for a year or more.
  - untog 7y ago
    I don't think we need to apply absolutes here. It can be true both that it would be very difficult for airlines to keep cash reserves to cope with an event of this scale and that keeping essentially zero cash reserves (in fact, American has been borrowing like crazy) is absolute negligence. If airlines are considered essential enough to the functioning of the country that they must be bailed out, they should also be run in a way that reflects that importance to society.
  - lordnacho 7y ago
    And yet, it is not the point that management/owners could not have foreseen this, and so do not deserve to have the company go under. Even if the company goes under, there will still be airlines afterwards regardless of who owns them. Should we all pay to keep the ones that happen to be there, or let new players have a go? Dinosaurs didn't hedge themselves either, in terms of evolution. But life went on anyway, and mammals dominate now.
    - asdfasgasdgasdg 7y ago
      I'm not knowledgeable enough to know which is best. Is it more efficient for these companies to go under, and for luckier rivals to buy their assets and consolidate? Or is it more efficient for the government to provide capital (for some consideration of course) and smooth out the dip? Whichever leads to better outcomes is what we ought to do. I'm not a pure capitalist. I don't subscribe to the theory that market forces always lead to optimal outcomes. As such I don't buy the notion that bailouts are always the wrong decision.
      - luckylion 7y ago
        > Whichever leads to better outcomes is what we ought to do. The question is: better for ... the shareholders? The tax payers? The environment? The pilots? The passengers? The airline managers? You'll find that "better" is often at odds for different groups.
  - mLuby 7y ago
    For low frequency, high impact events there's a thing called insurance. The problem is exemptions—like "Acts of God"—which I think should generally be illegal. Higher premiums suck but they'll accurately account for risk (which now goes uncovered).
- sdenton4 7y ago
  Giant asteroid extincts a bunch of species... Sure, the now vanished mega fauna were not adapted to asteroids. But as a once in a hundred thousand years event, it doesn't mean they were otherwise unfit.
  - rriepe 7y ago
    They were unfit because a giant asteroid is as much a part of the environment as anything else.
    - asdfasgasdgasdg 7y ago
      I question whether it is possible to be "fit" in this analogy, or just lucky. Also, let's not forget that "fitness" and "conformance to our values" are separate dimensions. It is not necessarily the case that we humans want to optimize companies for their ability to withstand once in ???? year events without government assistance. Companies optimized along such criteria would be more fit for an environment where government assistance doesn't exist, but crucially that is not necessarily the actual environment that companies exist in in the real world. And it is not obvious to me that the citizenry benefits from companies optimized that way.
      - rriepe 7y ago
        It's a good analogy because fit and lucky are hard to tell apart in evolution too.
      - PBnFlash 7y ago
        Homogeneity leads to effecency and hedrogeneity leads to resiliance. The stability the fed provides allows them to do what they want in hugely optimized and complex ways, it just turns out what they want to do doesn't align with the interests of the population sometimes. I don't think they would be any less likely to do what they are doing they would just do it less effecently. The fed doesn't want to use the stick anymore, and business gets a carrot when it throws a tantrum. The insentives are perverse.
  - 7y ago

sh0ckngn3wz 7y ago

Turns out it’s valuable to foster an intuition for how the world we have to navigate literally every day works? I’m shocked. Welp, let’s climb back into our ideology for 8 hours.

rmrfstar 7y ago

Unfortunately the bankruptcy process is extremely slow and costly. A lot of built-up value like institutional knowledge is destroyed. Bailing-in creditors and diluting shareholders is fast and cheap by comparison. This is particularly true when the business is likely to continue operations similar to those in place at the time of insolvency. Bankruptcy works for Theranos or Pets.com, but not so much for airlines in 2020.

lordnacho 7y ago
> Bailing-in creditors and diluting shareholders is fast and cheap by comparison. I agree, whether the planes go through bankruptcy to a new player or the old ownership is radically changed, it allows to things to take a different course. With big dilution you can imagine the new owner essentially having bought the business before bankruptcy.

atomi 7y ago

We could also nationalize the airline industry. We've already seen how capitalism alone is a poor predictor of future demand. And while we're at it, let's make the internet a utility.

kazagistar 7y ago
And like, in this case, it's not even a violation of capitalistic principals: if you need money from investors, you sell shares and ownership to investors, and in this case the investor is the people as represented by the government. If you make risk public, then profits should be public too.
- not_exactly__ 7y ago
  Except in airlines there are almost no profits :)
  - chillwaves 7y ago
    http://news.aa.com/news/news-details/2019/American-Airlines-Group-Reports-Third-Quarter-2019-Profit-CORP-FI/default.aspx http://news.aa.com/news/news-details/2019/American-Airlines-...
  - grecy 7y ago
    Airlines profited around $28 billion in 2019 [1]. If they were publicly owned, the prices of flights would just go down until there was no profit. Also, the CEOs wouldn't be paid tens of millions of dollars per year [2], so again, prices would go down. [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... [2] https://skift.com/2019/05/29/united-wont-pay-munoz-a-full-bonus-airline-ceo-pay-2018/ https://skift.com/2019/05/29/united-wont-pay-munoz-a-full-bo...
    - refurb 7y ago
      Publicly owned doesn’t mean non-profit, it means government ownership. There are plenty of public companies who post profits. And even if we were to make airline public, wed just be reversing the trend over the last few decades. There is a reason why so many nationalized airline went private, the government kind sucks at running businesses (not always, but often).

clairity 7y ago

> "bailouts ... tend to keep things in the hands of the same people" yes, this is the crux, a gross unfairness. common folks get harsh punishments, while financiers and corporate executives get away with major thefts and get to keep the fruits of their transgressions. i'm all for harsher punishments for actions that lead to greater damages to more lives (in this case, taking a little bit from lots of people). with greater power must come even greater responsibility. tear up the corporate veil. and let's be vigorous in reassigning assets so as to support a functioning market for better management.

rmrfstar 7y ago
There is a middle path, where creditors are converted to shareholders and shareholders are massively diluted. Effective control of the company will be placed in the hands of people who re-capitalize the company, and they will definitely not let the old management stick around. Relative to bankruptcy, this has the benefit of allowing the company to continue operating. It also deters future recklessness. Probably should have happened in 2009, but didn't.
- extralegos 7y ago
  Great point, and very relevant to 2009, wherein the automakers would have likely not been replaced by American companies. But, in the case of United States airline companies, they would very likely be replaced by other American companies if they were not adopted by the creditors.
  - dantheman 7y ago
    Foreign airlines are not allowed to provide domestic routes.
- ace32229 7y ago
  It did happen in the UK. Banks that took bailouts traded shares for cash with the Treasury (this is a layman's understanding at least). RBS notably became 84% publicly owned. The real scandal is the government selling back the shares for less than they paid for them (when RBS was on the brink of collapse).

chillingeffect 7y ago

iiuc, these assets are valued at approx 10% of the previous value. while materials such as aluminum do not rapidly decline, their meta-information does: for airlines: certifications, inspections and other legal requirements. in other businesses assets are perishable. basically a lot of momentum is lost.

badrabbit 7y ago

Yeah, but the point is not to save the airline, it's to prevent a cascading effect. Not that i support thid bailout one bit. Unlike 2008 i don't see airlines going under cascadig beyond US regional commercial flights not being available for a few months. Cargo will be fine, anything international will be fine.

bluedevil2k 7y ago

This is not what would happen in a bankruptcy in the airlines industry. They would file for Chapter 11 which lets them re-negotiate with creditors instead of having to liquidate everything. Who are the creditors? Pilots union, flight attendant union, etc. Sometimes the airlines don't own all their planes, they lease them from a holding company. The airlines would say "take an 10% haircut on benefits the next 5 years or else we will liquidate and you'll get nothing". Then they'll re-emerge from bankruptcy with a healthier balance sheet with future liabilities lowered and a better cash flow.

ntsplnkv2 7y ago
Pilots aren't easily replaceable and you need a certain amount of flight attendants minimum for every flight. Clearly a strike would be effective - look what's happening now. They barely can handle 1 month without asking for a bailout. Even more so in an economic recession. Let them liquidate. It's no different than before.

candybar 7y ago

Sure there's value in this sort of reassignment but what usually happens in that case is: 1) Private equity acquires the assets at bargain basement prices and proceeds to squeeze out whatever profits they can. One of the most common ways this is done is by laying off staff. 2) A competitor buys them out, leaving less competition. Also followed by a large layoff to reduce redundancies. 3) The business is reorganized to maximize short-term efficiency, regardless of the cost to others - customers, partners and society at large. These aren't bad outcomes per se, but I suspect that those that are reflexively against corporate handouts wouldn't be happy about these either. The general point of an industry bailout is to avoid outcomes like this since in crises, these can add to the pain. The actions taken to ensure your own company is financially solvent are often counterproductive if they are all taken by all parties involved. And various markets involved - whether in terms of labor or capital - are also likely not functioning efficiently enough to absorb the resulting dislocations. And typically bailouts are not great outcomes for the shareholders involved. Bailouts can be great for the management, but only to the extent that it's also great for most employees. As long as the shareholders (and creditors to a lesser extent) take a big cut, there isn't a huge moral hazard either.

linuxftw 7y ago

Remember, you're not actually bailing out the airlines, you're bailing out the banks that loaned them money. The banks always, always win.

hogFeast 7y ago

Can tell you don't have much experience of bankruptcy. Okay, airlines go bankrupt...presumably, airports go bankrupt too...simple, the various assets are "reassigned"...true. One big problem: if an airline is bankrupt, what airport is going to give them a slot? I can tell you: no airport, because they will lose that money in bankruptcy. Likewise: what airline will land at a bankrupt airport? Again, no airline. What you are saying is that we should stop all flights into and out and within the US for a period of months (probably years) whilst these cases go through court (and it will probably take years)...is that realistic? Likewise, you appear not to realise how difficult it will be to fire millions of staff and rehire them at other companies. Bankruptcy is neutral in terms of assets, it is not neutral in terms of cost...it is very very very costly. This isn't a hard problem. You are completely wrong that bailouts "keep things in the hands of the same people". This is what largely happened in the US...because the US led insolvent companies go bankrupt (mostly but not always i.e. Fannie/Freddie) most of the companies that were "bailed out" weren't insolvent. But, irregardless, it is very easy to create a package that forces losses...very very easy. I agree with you. Companies that gorged on debt should be punished. It is very easy to do this with new equity issues, preferred issues, etc. without bankruptcy. This should only be, however, for companies that have substantial net debt positions (where I am, one or two airlines were buying back shares but they had/have net cash positions...the issue isn't repurchasing shares, that is just a tax-efficient return of capital, it is being under-capitalised and expecting someone else to capitalise you for free).

dmurray 7y ago
> One big problem: if an airline is bankrupt, what airport is going to give them a slot? I can tell you: no airport, because they will lose that money in bankruptcy. Likewise: what airline will land at a bankrupt airport? Again, no airline. Why would both of these be true? Normally you don't want to sell to a bankrupt customer, or at least you don't give them credit. But you would definitely buy from a bankrupt supplier if they have something you need. Some airports pay airlines, but mostly the cash flows the other way, so the airline should be happy to land at the bankrupt airport.
- hogFeast 7y ago

JamesBarney 7y ago

Most companies are worth far more than the value of their assets. Take Google or Microsoft for instance. If either of these companies were split apart, and the assets were sold at auction how much would those assets be worth compared to the market cap of the company?

Miraste 7y ago
That seems non-comparable. Google and Microsoft have a lot of value in IP and mindshare, plus various monopolies. American and Delta (for example) are 100% fungible.

js8 7y ago

> What happens at bankruptcy is that the claims on various assets are reassigned. The planes will get sold to someone who reckons they know how to run an airline, and the staff are likewise hired by new businesses. Alternatively, it would be possible to create a worker cooperative from the failing business. The managers who created the mess would be ousted and the actual employees could decide what to do with the rest.

berryjerry 7y ago
if the workers want to buy the stock up while it's cheap or bankrupt then why not? The whole point of a bankruptcy is that the company literally is worth less than zero.. Whoever buys it would owe the bank a ton of money and have to pay the bank out of their own pocket until they become profitable. Workers are free to do that, but if no one wants to do that, then the bank steps in and takes ownership.

jdsully 7y ago

You do lose the inherent value in the organization. Planes and humans don't create value on their own they have to be organized into a system. That system falls apart when a company is sold off for parts. Sometimes it makes sense if the organization is dysfunctional, but being a victim of a worldwide economic shutdown is not what I would call dysfunctional.

deleted 7y ago
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csomar 7y ago
> You do lose the inherent value in the organization. Planes and humans don't create value on their own they have to be organized into a system. Isn't the problem in that system itself, and thus the collapse of that particular system is a net-benefit. A better run company will absorb these sell-offs and reassign priorities.
- atq2119 7y ago
  If they're collapsing due to a massive external event, the answer is no. If part of the blame is to be assigned in the decision to do share buybacks over the course of many years, then the people responsible for that decision need to be held accountable (personal gains clawed back etc.).

mnm1 7y ago

Seriously. All the talk about markets this and that but when the market acts and these companies go bankrupt mostly because of their own incompetence, it's time for a bailout. It's absurd. Either you let the market run its course or make this available to everyone. If United can get a bailout small businesses should too so neither should fear bankruptcy. If that's not palatable, then let all these businesses fail. That's part of the system and it seems to be there for good reasons.

llcoolv 7y ago

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks. There is a way out of this joke. Keep your heads up and don't give up.