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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 happen

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).
- asdfasgasdgasdg 7y ago
  This is just shifting the problem to a different industry. The insurance industry would not have been sufficiently capitalized to weather this storm.
  - iamaelephant 7y ago
    That what the higher premiums are for, genius man.
    - CamperBob2 7y ago
      What good is insurance that almost no one can afford?
      - mLuby 7y ago
        Clearly we (taxpayers) can afford it when we bail them out, so businesses must be able to as well.
        CamperBob2 7y ago
        We bail them out at gunpoint, though, which doesn't meet any sane person's definition of "insurance."
    - dang 7y ago
      We've banned this account for repeatedly breaking the site guidelines. It's not ok to do flamewars on HN. If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
SilasX 7y ago
At risk of reinventing a wheel I'm not aware of ... What about just mandating that they all pay some fraction of revenues into a common insurance fund that pays out "holding pattern" costs (furlough wages, hangar rental, etc) in times of travel-restricting emergencies. That way, no airline could gain a competitive advantage by running with a dangerously fragile buffer.
notyourday 7y ago
> 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. It is not "cash". It is "cash and cash equivalents" i.e. short term highly liquid securities such as money market funds, or super short term government debt. No sane CFO keeps cash in DDA accounts in excess of the immediate need if it falls outside the FDIC coverage limits.
iamaelephant 7y ago
"I think it's too conservative to carry enough cash to handle a thing that is literally right now happening" Truly sir you are a genius of the highest order.

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).

asdfasgasdgasdg 7y ago
This is just shifting the problem to a different industry. The insurance industry would not have been sufficiently capitalized to weather this storm.
- iamaelephant 7y ago
  That what the higher premiums are for, genius man.
  - CamperBob2 7y ago
    What good is insurance that almost no one can afford?
    - mLuby 7y ago
      Clearly we (taxpayers) can afford it when we bail them out, so businesses must be able to as well.
      - CamperBob2 7y ago
        We bail them out at gunpoint, though, which doesn't meet any sane person's definition of "insurance."
  - dang 7y ago
    We've banned this account for repeatedly breaking the site guidelines. It's not ok to do flamewars on HN. If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html

SilasX 7y ago

At risk of reinventing a wheel I'm not aware of ... What about just mandating that they all pay some fraction of revenues into a common insurance fund that pays out "holding pattern" costs (furlough wages, hangar rental, etc) in times of travel-restricting emergencies. That way, no airline could gain a competitive advantage by running with a dangerously fragile buffer.

notyourday 7y ago

> 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. It is not "cash". It is "cash and cash equivalents" i.e. short term highly liquid securities such as money market funds, or super short term government debt. No sane CFO keeps cash in DDA accounts in excess of the immediate need if it falls outside the FDIC coverage limits.

iamaelephant 7y ago

"I think it's too conservative to carry enough cash to handle a thing that is literally right now happening" Truly sir you are a genius of the highest order.