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From a seperate thread a few days ago: As someone who leans heavily free markets, even I buy the argument that it's not wise to let every airline in the countr

by anm89 7y ago

From a seperate thread a few days ago: As someone who leans heavily free markets, even I buy the argument that it's not wise to let every airline in the country fail simultaneously, regardless of fault. Here's the thing, there is nothing unfree market about demanding terms for those bailouts, it should be a negotiation, not an ultimatum from the airline industry. So for example, if you enforced all bonuses to be canceled for the next three years and retroactively fined for the last three years, set executive pay at a max of $50k for the next three years (and banned any new stock incentives during that time), fined the executives equal to 125% of capital gains they made on stock incentives, during the stock buyback period, and made all bailouts loans not grants at above market rates, you could ostensibly let them decide how much bailout they wanted without continuing this endless cycle of letting them run at losses knowing the public will foot the bill. And if they don't take it, then let them die. Basically the end result of the bailout has to be drastically net negative over the last 3-5 years for every airline executive for this not to create moral hazard. I think that is achievable. Unfortunately well probably just hand them $50 billion and make poor people pay for it. note: I get the issue that a lot of execs would just walk away. You'd have to think how to structure it to hold them on the hook. It's just an example.

arcticbull 7y ago
I'm very much a Canadian left-wing type, so what y'all largely call "communists" in America, and I couldn't disagree more. Failing of businesses is a critical part of capitalism. If we let the big ones fail a number of smaller ones would spring up and compete as they had before the last couple of decades of mergers and acquisitions. Just look at this list of airline M&A in the last couple of decades [1]. Looks like over 50 airlines were folded into 5. That's a 10:1 reduction. I guarantee that in this economic climate, we wouldn't see 50 fall down, but I could see us losing all the big ones without help. The more we rescue them the more they fold together to the point they have to be bailed out. We should allow them to fold, create short-term pain but in the long-term foster a large competitive ecosystem. I made the same exact case for letting all the major automakers fail in 2008. Ford would have made it out and Tesla would have probably been miles ahead. Capitalism isn't supposed to be pretty. As a side-note America has far fewer major international airlines per capita than most major geographies. There's 3 international airlines (American, United, Delta) for ~350M people, or 1 per 116MM people. Canada has 2 for 35MM. Europe has 15-ish for 741MM people, or 1 per 50MM. China has 29 for 1.386BB people or 1 per 47MM people. [1] https://www.airlines.org/dataset/u-s-airline-mergers-and-acquisitions/ https://www.airlines.org/dataset/u-s-airline-mergers-and-acq...
- koolba 7y ago
  50 small airlines would all individually collapse in this economic climate. None would have the capital position to weather a multi month lull of this magnitude. I’m not saying I agree with the bailout cycles but I don’t think they’d inherently weather this storm any better. On the plus side it’s more likely smaller localized capital would be able to get them back up again when things finally turn around.
  - arcticbull 7y ago
    WestJet in Canada for instance is basically going into hibernation. They're laying off 50% of the workforce, and cancelling all US and international flights [1]. They are however not yet being bailed out by the government, and they are also not going out of business. I'm not sure any small carrier need go bankrupt. They park their planes, furlough their staff, and in a few months, open up with some summer promos. Not flying doesn't mean a trip through Chapter 11. [1] https://torontosun.com/business/money-news/canadian-airlines-suspend-routes-lay-off-workers-over-covid-19 https://torontosun.com/business/money-news/canadian-airlines...
    - cjbassi 7y ago
      This plan of action makes perfect sense to me, and I'm confused why American companies aren't doing the same? Or are they? If so, why would they need to be bailed out?
      - arcticbull 7y ago
        My question exactly. Especially as airlines have very tight relationships with credit card issuers who historically have provided debtor in posession financing as the us majors have exited bankruptcy. They do this by prepaying for large quantities of miles to hand out in reward for credit card spending. Ask them first before coming by with hat in hand.
  - kingaillas 7y ago
    Let them fail. I'm tired of this getting-more-frequent cycle where corporations come crying to the government for bailouts. You want balls-to-the-wall free market capitalism? Then live with the downsides, including that "changing market conditions might render your company insolvent on very short notice." Otherwise, it's just corporate socialism; seemingly a dirty word only when people and healthcare is involved. If corporations only get rewarded for maximizing profits, they'll never learn to store some for a rainy day (or weeks/months/quarter, etc.) Without heavy restrictions, who can say the money will be spent directly benefiting people? So airlines (probably will) get bailout money... why? So they can keep operating and don't have to layoff employees? Well how about giving bailout money directly to those employees without filtering it through the corporation first which will skim a certain amount off the top? If the goal is to keep the airline in business... why? Leisure travelers have dried up, leaving business passengers... how about jacking up the rates for business travel instead of essentially subsidizing it? I thought corporate taxes were a waste of time because corporations would just increase their prices to make up for it. Well if that's true, how about skipping them in the bailout process, let them jack up their rates, and consumers can opt in/out of the services they offer at the going rate. Isn't that how the free market is supposed to work? Bailout money should go to PEOPLE who need to eat. Corporations can renegotiate contracts, delay payments, raise prices afterwards, etc. Maybe some good will come from this pandemic, namely a rethinking of the importance of a safety net for citizens, and a readjusted attitude that wall street's metrics shouldn't be the only goal of a corporation.
xwdv 7y ago
There is no way to structure it. If a CEO wants to walk away he walks, and then you’ll be stuck with choosing from a pool of people who are desperate enough to be CEO of major airlines for $50k a year. Bad idea.
- arcticbull 7y ago
  The CEO of Japan Airlines makes $80K USD/yr and their airline actually performs incredibly well so maybe that's a pool we want to swim in. [1] Nobody's going to turn down "CEO of one of the biggest airlines in the world" because it pays just a pittance. There's other reasons to take the job. [1] https://www.flightglobal.com/sink-or-swim-haruka-nishimatsu-chief-executive-japan-airlines/72477.article https://www.flightglobal.com/sink-or-swim-haruka-nishimatsu-...
  - redis_mlc 7y ago
    JAL is not the best example for many reasons. The cuurent leader is a former monk (who was appointed after the airline "froze" - stopped flying due to gross mismanagement,) In Japan, leaders get massive benefits.
    - arcticbull 7y ago
      Monastic backstory aside do leaders not get non-monetary benefits in American society?
      - redis_mlc 7y ago
        No, not to a comparable level. Japanese leaders get free houses, air travel, etc. worth millions. In the US you must report that to the IRS, but not in Japan. However, American leaders scam their company using buybacks, which is the top white-collar crime of the past 2 centuries. (By boosting EPS, your options/shares are worth much more, and you can automatically hit any EPS targets.) Even hardware engineers in Japan are treated really well - the company will find you an apartment, a wife, etc. When you travel, you don't carry anything, you can Fedex it ahead of your trip. Your business card from a major company is essentially a VIP pass everywhere.
clairity 7y ago
> "I get the issue that a lot of execs would just walk away." it depends on the alternatives they have. there aren't many open executive roles out there, and anyone in that position will be loathe to trade down. the incentive is prestige and power, not (just) money. they'd still be the ultimate monarchs of their little fiefdoms, just with less cash stuffed in the pockets.
formercoder 7y ago
I’m always confounded by this “banning bonuses” conversation. In any job I’ve had my bonus is an expected part of my annual compensation. If you ban bonuses, people will switch companies, and their new contracts will state the same comp at 100% salary. Setting a total comp threshold could make sense. Not sure if it should be related to what % of revenue comp is, though at airlines it’s very high.
- jdc 7y ago
  What alternative disincentive would you propose?
  - formercoder 7y ago
    Setting up this system would be really tough while making it impossible to game. For every one smart person in the public sector writing laws, there are 10 smarter people trying to work their away around them to make more money.
    - jdc 7y ago
      If only there was some kind of chain of command or responsibility we could use to hold people accountable for the actions of a firm.
  - basch 7y ago
    Incentivize businesses to store cash.
- zdragnar 7y ago
  Really? Every job I have had has bonus tied at least in some way to company performance (though I have never held a C-level job either).
  - formercoder 7y ago
    There’s usually an expected range. When your bonus is 300+% of salary, getting $0 means you find a new gig.
phkahler 7y ago
>> Here's the thing, there is nothing unfree market about demanding terms for those bailouts, it should be a negotiation, not an ultimatum from the airline industry Executives and wall street like to talk about free markets when they're fucking the public, but when their company loses, that's the last thing they want. The worst ever was handing the pensions over the xxx (whatever the Gov pension guarantee thing is) because "hey it will let us avert bankruptcy" which would land the pension fund there anyway. It became a way out rather than a safety net.
- jdkee 7y ago
  “Privatize gains and socialize losses”, is how many executives see the free market.
david38 7y ago
Exactly. The argument that you can’t find talent for less than 10m is crap. Comp is well known to not be a function of good stewardship.
hedora 7y ago
Instead of handing them $50b, the government should offer to buy $50b of newly issued shares and sell them off over some timeframe. As part of the deal, executive comp packages would be frozen (so the execs couldn’t simply issue more shares to themselves to avoid the impact of dilution)
- quantified 7y ago
  Isn't that similar to the bailout of GM? Which turned a profit for the gov't IIRC.
  - nealabq 7y ago
    The US govt lost $11.2 billion on the GM bailout. https://www.reuters.com/article/us-autos-gm-treasury-idusbrea3t0mr20140430 https://www.reuters.com/article/us-autos-gm-treasury-idusbre...
    - quantified 7y ago
      Ah, thanks. Nevermind
onetimemanytime 7y ago
USA should buy stock in them, no bailout. Here's $2.74 Billion and we own 68% or whatever the market price is. Or go caput, let's see who blinks first. Next time save some cash for bad times. Of course sell it back in the market 2 years from now or when things stabilize. Why should we bail out their shareholders?

by anm89 7y ago

arcticbull 7y ago

I'm very much a Canadian left-wing type, so what y'all largely call "communists" in America, and I couldn't disagree more. Failing of businesses is a critical part of capitalism. If we let the big ones fail a number of smaller ones would spring up and compete as they had before the last couple of decades of mergers and acquisitions. Just look at this list of airline M&A in the last couple of decades [1]. Looks like over 50 airlines were folded into 5. That's a 10:1 reduction. I guarantee that in this economic climate, we wouldn't see 50 fall down, but I could see us losing all the big ones without help. The more we rescue them the more they fold together to the point they have to be bailed out. We should allow them to fold, create short-term pain but in the long-term foster a large competitive ecosystem. I made the same exact case for letting all the major automakers fail in 2008. Ford would have made it out and Tesla would have probably been miles ahead. Capitalism isn't supposed to be pretty. As a side-note America has far fewer major international airlines per capita than most major geographies. There's 3 international airlines (American, United, Delta) for ~350M people, or 1 per 116MM people. Canada has 2 for 35MM. Europe has 15-ish for 741MM people, or 1 per 50MM. China has 29 for 1.386BB people or 1 per 47MM people. [1] https://www.airlines.org/dataset/u-s-airline-mergers-and-acquisitions/ https://www.airlines.org/dataset/u-s-airline-mergers-and-acq...

koolba 7y ago
50 small airlines would all individually collapse in this economic climate. None would have the capital position to weather a multi month lull of this magnitude. I’m not saying I agree with the bailout cycles but I don’t think they’d inherently weather this storm any better. On the plus side it’s more likely smaller localized capital would be able to get them back up again when things finally turn around.
- arcticbull 7y ago
  WestJet in Canada for instance is basically going into hibernation. They're laying off 50% of the workforce, and cancelling all US and international flights [1]. They are however not yet being bailed out by the government, and they are also not going out of business. I'm not sure any small carrier need go bankrupt. They park their planes, furlough their staff, and in a few months, open up with some summer promos. Not flying doesn't mean a trip through Chapter 11. [1] https://torontosun.com/business/money-news/canadian-airlines-suspend-routes-lay-off-workers-over-covid-19 https://torontosun.com/business/money-news/canadian-airlines...
  - cjbassi 7y ago
    This plan of action makes perfect sense to me, and I'm confused why American companies aren't doing the same? Or are they? If so, why would they need to be bailed out?
    - arcticbull 7y ago
      My question exactly. Especially as airlines have very tight relationships with credit card issuers who historically have provided debtor in posession financing as the us majors have exited bankruptcy. They do this by prepaying for large quantities of miles to hand out in reward for credit card spending. Ask them first before coming by with hat in hand.
- kingaillas 7y ago
  Let them fail. I'm tired of this getting-more-frequent cycle where corporations come crying to the government for bailouts. You want balls-to-the-wall free market capitalism? Then live with the downsides, including that "changing market conditions might render your company insolvent on very short notice." Otherwise, it's just corporate socialism; seemingly a dirty word only when people and healthcare is involved. If corporations only get rewarded for maximizing profits, they'll never learn to store some for a rainy day (or weeks/months/quarter, etc.) Without heavy restrictions, who can say the money will be spent directly benefiting people? So airlines (probably will) get bailout money... why? So they can keep operating and don't have to layoff employees? Well how about giving bailout money directly to those employees without filtering it through the corporation first which will skim a certain amount off the top? If the goal is to keep the airline in business... why? Leisure travelers have dried up, leaving business passengers... how about jacking up the rates for business travel instead of essentially subsidizing it? I thought corporate taxes were a waste of time because corporations would just increase their prices to make up for it. Well if that's true, how about skipping them in the bailout process, let them jack up their rates, and consumers can opt in/out of the services they offer at the going rate. Isn't that how the free market is supposed to work? Bailout money should go to PEOPLE who need to eat. Corporations can renegotiate contracts, delay payments, raise prices afterwards, etc. Maybe some good will come from this pandemic, namely a rethinking of the importance of a safety net for citizens, and a readjusted attitude that wall street's metrics shouldn't be the only goal of a corporation.

xwdv 7y ago

There is no way to structure it. If a CEO wants to walk away he walks, and then you’ll be stuck with choosing from a pool of people who are desperate enough to be CEO of major airlines for $50k a year. Bad idea.

arcticbull 7y ago
The CEO of Japan Airlines makes $80K USD/yr and their airline actually performs incredibly well so maybe that's a pool we want to swim in. [1] Nobody's going to turn down "CEO of one of the biggest airlines in the world" because it pays just a pittance. There's other reasons to take the job. [1] https://www.flightglobal.com/sink-or-swim-haruka-nishimatsu-chief-executive-japan-airlines/72477.article https://www.flightglobal.com/sink-or-swim-haruka-nishimatsu-...
- redis_mlc 7y ago
  JAL is not the best example for many reasons. The cuurent leader is a former monk (who was appointed after the airline "froze" - stopped flying due to gross mismanagement,) In Japan, leaders get massive benefits.
  - arcticbull 7y ago
    Monastic backstory aside do leaders not get non-monetary benefits in American society?
    - redis_mlc 7y ago
      No, not to a comparable level. Japanese leaders get free houses, air travel, etc. worth millions. In the US you must report that to the IRS, but not in Japan. However, American leaders scam their company using buybacks, which is the top white-collar crime of the past 2 centuries. (By boosting EPS, your options/shares are worth much more, and you can automatically hit any EPS targets.) Even hardware engineers in Japan are treated really well - the company will find you an apartment, a wife, etc. When you travel, you don't carry anything, you can Fedex it ahead of your trip. Your business card from a major company is essentially a VIP pass everywhere.

clairity 7y ago

> "I get the issue that a lot of execs would just walk away." it depends on the alternatives they have. there aren't many open executive roles out there, and anyone in that position will be loathe to trade down. the incentive is prestige and power, not (just) money. they'd still be the ultimate monarchs of their little fiefdoms, just with less cash stuffed in the pockets.

formercoder 7y ago

I’m always confounded by this “banning bonuses” conversation. In any job I’ve had my bonus is an expected part of my annual compensation. If you ban bonuses, people will switch companies, and their new contracts will state the same comp at 100% salary. Setting a total comp threshold could make sense. Not sure if it should be related to what % of revenue comp is, though at airlines it’s very high.

jdc 7y ago
What alternative disincentive would you propose?
- formercoder 7y ago
  Setting up this system would be really tough while making it impossible to game. For every one smart person in the public sector writing laws, there are 10 smarter people trying to work their away around them to make more money.
  - jdc 7y ago
    If only there was some kind of chain of command or responsibility we could use to hold people accountable for the actions of a firm.
- basch 7y ago
  Incentivize businesses to store cash.
zdragnar 7y ago
Really? Every job I have had has bonus tied at least in some way to company performance (though I have never held a C-level job either).
- formercoder 7y ago
  There’s usually an expected range. When your bonus is 300+% of salary, getting $0 means you find a new gig.

phkahler 7y ago

>> Here's the thing, there is nothing unfree market about demanding terms for those bailouts, it should be a negotiation, not an ultimatum from the airline industry Executives and wall street like to talk about free markets when they're fucking the public, but when their company loses, that's the last thing they want. The worst ever was handing the pensions over the xxx (whatever the Gov pension guarantee thing is) because "hey it will let us avert bankruptcy" which would land the pension fund there anyway. It became a way out rather than a safety net.

jdkee 7y ago
“Privatize gains and socialize losses”, is how many executives see the free market.

david38 7y ago

Exactly. The argument that you can’t find talent for less than 10m is crap. Comp is well known to not be a function of good stewardship.

hedora 7y ago

Instead of handing them $50b, the government should offer to buy $50b of newly issued shares and sell them off over some timeframe. As part of the deal, executive comp packages would be frozen (so the execs couldn’t simply issue more shares to themselves to avoid the impact of dilution)

quantified 7y ago
Isn't that similar to the bailout of GM? Which turned a profit for the gov't IIRC.
- nealabq 7y ago
  The US govt lost $11.2 billion on the GM bailout. https://www.reuters.com/article/us-autos-gm-treasury-idusbrea3t0mr20140430 https://www.reuters.com/article/us-autos-gm-treasury-idusbre...
  - quantified 7y ago
    Ah, thanks. Nevermind

onetimemanytime 7y ago

USA should buy stock in them, no bailout. Here's $2.74 Billion and we own 68% or whatever the market price is. Or go caput, let's see who blinks first. Next time save some cash for bad times. Of course sell it back in the market 2 years from now or when things stabilize. Why should we bail out their shareholders?