6 ms·
That's not the way it works. For instance, over the last 10 years, Boeing spent 45 B$ in buyback out of its 60 B$ profit. Now that the situation looks grim, Boe
by idoubtit 7y ago
That's not the way it works. For instance, over the last 10 years, Boeing spent 45 B$ in buyback out of its 60 B$ profit. Now that the situation looks grim, Boeing does not have enough cash to live through the crisis. But it won't go bankrupt, it will get 60 B$ of cash from today's federal government bill, and probably more later on.
- lotsofpulp 7y agoWhat would you have done? Saved $45B in cash in case a virus like this causes the world economy to stop? There is no world where an airline/hotel or any business could have possibly saved enough cash to fight a 90%+ drop in revenue for months and still remain competitive in the market.
- adrr 7y agoApple and google have large cash reserves. They also could have paid off all their debt with the profits.
- saagarjha 7y agoI thought that for them it was just better to keep borrowing than to move around their money?
- lotsofpulp 7y agoApple and google are uniquely extremely high margin businesses, and even they would be shaken after a few months of no income.
- cycrutchfield 7y agoEspecially because they know that if they go under, the Federal government will have their back. It's win-win, baby! What's a moral hazard?
- jdavis703 7y agoBoeing’s crisis started long before CV19. The 737 Max debacle was already weighing heavily on their balance sheet. The point is, it’s hard to predict the future. Who knows if the future will bring a fatal bug in your software, a pandemic, or both. But regardless, we all know tough times will always happen, and to therefore be prepared.
- lotsofpulp 7y agoAnd my point is you can’t be prepared for months of no revenue. No consumer is going to pay the high prices needed for a business to insure itself for an extinction level event, because an alternative business won’t and will offer lower prices. For example, a hotel owner can choose to squirrel away cash to protect the hotel and its employees for months of no income. A competing hotel will instead choose to renovate the hotel. Which hotel will customers choose to stay at?
- jdavis703 7y agoThe “prepper” hotel could instead take out a loan (using their savings as collateral) to renovate.
- goatinaboat 7y agoWhat would you have done? Saved $45B in cash in case a virus like this causes the world economy to stop? The job of management is to find a profitable way to deploy capital. If management are returning capital to shareholders, outside of expected dividends of course, it’s because they are bereft of ideas. What would I have done? Invested a large portion of that money in long term R&D and careful strategic acquisitions. It’s the same over at IBM. The current generation of managers have inherited cash flows set up by their predecessors but have no idea what to do with them.
- lotsofpulp 7y agoWhat R&D would pay the airlines’ and hotels’ employees for the next few months?
- goatinaboat 7y agoOP’s question was about Boeing, but it’s true that the airlines also squandered their capital on share buybacks.
- lotsofpulp 7y agoSquandered means there was a better, evident option at the time. I have not yet been able to find a satisfactory answer to the question of what the companies should have done rather than buybacks, especially to mitigate the effects of a literal shutdown of basically entire lines of business resulting in no income. The businesses in years past made money, invested some of it, spent some on R&D, and distributed some to shareholders (via buybacks). What other option was there?