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>Buybacks are just a scapegoat when in reality an airline parking 14b$ in case of a black swan event would have made absolutely no financial sense especially si
by thrwaway4000 7y ago
>Buybacks are just a scapegoat when in reality an airline parking 14b$ in case of a black swan event would have made absolutely no financial sense especially since shareholders expect some reward for their risks. Imagine if they did that and ended up with just 4 more months of operation at incredible losses. Stocks would probably have plummeted to similar levels anyways and the shareholders would've ended up with no returns at all.
If they are the only airliner left standing after four months I think the outlook would be quite different. That only works if the government doesn't bail out their competitors leaving them at a disadvantage.
- mardifoufs 7y agoMaybe that will give you better chances of survival but think about it from an airlines perspective. Is it rational to basically ignore shareholders to hold reserves in case of a black swan that would cut your entire cashflow in the hope of surviving a few months at best? You're basically giving no return on investment to your shareholders, which could have made use of the money in a more productive way than just parking it in cash/equivalents, so that they get the privilege of seeing that money burnt down at a phenomenal rate if that improbable worst case scenario happens? And all of that while investing in a riskier industry? Again, the investors took a risk and should not be bailed out. But the buybacks and the lack of reserves make sense. You can't take a risk without expectation of return only to get an extremely risky solution (that may or may not save half of your equity value) to an improbable event.