7 ms·

U.S. airlines want a $50B bailout. They spent $45B buying back their stock

85 points by spking 7y ago

ComputerGuru 7y ago
Just remember that the Federal government ended up making money on the automaker and bailouts (quite apart from all the jobs that were saved).
- christiansakai 7y ago
  Can you elaborate more? I'm curious on this.
  - bpodgursky 7y ago
    The money was loaned to provide liquidity, and paid back with (low) interest. I would need to look it up, but IIRC overall the feds made money on the bailout, especially to the banks, but took a slight haircut on the money they lent to automakers. Of course, that haircut doesn't factor in the benefit in keeping those industries alive and keeping those people employed (IMO very worth the price), but that's a bigger question.
- AndrewBissell 7y ago
  This is a canard for a lot of reasons, first and foremost because the government has not charged one penny for the enormous subsidy it provides in the form of a now-explicit backstop which allows these companies to borrow at much lower interest rates. Those lower interest rates translate directly into less income for pension funds and savers. Every large investment bank owes its continued existence to the government. Would you say the taxpayers have been sufficiently reimbursed for that? https://www.nakedcapitalism.com/2014/11/aig-bailout-trial-revelation-morgan-stanley-told-geithner-file-bankruptcy-weekend-became-bank.html https://www.nakedcapitalism.com/2014/11/aig-bailout-trial-re...
  - ComputerGuru 7y ago
    But it never was about making a return on profit. The solvency and economic growth enabled by these overnight loans (assuming it doesn’t cause bigger problems down the line) is absolutely worth it.
    - AndrewBissell 7y ago
      That's a completely different and opposite point to "the government made money on the bailouts, actually." > (assuming it doesn't cause bigger problems down the line) We're dealing with those bigger problems now, today. The moral hazard created by the 2008/2009 bailouts is a big part of why executives could leverage their companies to buy back stock throughout the 2010s with confidence they would pay no personal price if it ended in tears.
      - ComputerGuru 7y ago
        That’s “it made money on top of everything else, even though that wasn’t even the point,” meaning any money made is a bonus.
- dlp211 7y ago
  In nominal dollars, not real dollars.
  - ComputerGuru 7y ago
    There’s really no such thing when you’re talking about a modern economy. Sure, compare in 2020 dollars (or 2019 dollars, to bypass all this recent volatility) if you must but the real value of a nominal dollar amount is directly affected by the strength of the economy and that is contingent on the bailouts and short-term loans. It’s very circular.
- opo 7y ago
  >Just remember that the Federal government ended up making money on the automaker ... The estimates I've read are that the federal government lost between 9 and 10 billion on the automaker bailouts. For example: >...In the end, taxpayers lost $10.2 billion. https://www.thebalance.com/auto-industry-bailout-gm-ford-chrysler-3305670 https://www.thebalance.com/auto-industry-bailout-gm-ford-chr... >...the U.S. recovered all but about $9 billion of the auto bailout money. https://www.marketplace.org/2018/11/13/what-did-america-buy-auto-bailout-and-was-it-worth-it/ https://www.marketplace.org/2018/11/13/what-did-america-buy-... >...(quite apart from all the jobs that were saved). Yea without the bailout, there would likely have been more job losses as consolidation occurred in the industry.
  - ceejayoz 7y ago
    The automaker bailouts were part of a much larger overall program, that did make a minimal profit. https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program > TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6% and perhaps a loss when adjusted for inflation.
    - basch 7y ago
      Altogether, accounting for both the TARP and the Fannie and Freddie bailout, $634B has gone out the door. Money has been coming back in two ways: $390B of principal has been repaid, and the Treasury has collected revenue from its investments of $364B. In total, the government has realized a $121B profit as of March 19, 2020.
  - basch 7y ago
    Luckily they diversified their bailouts, and made $121B so far. https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/
dominotw 7y ago
is there an explanation for stock buybacks that isn't ' evil stockholders'? edit: this was an actual question not a rhetorical one. curious why the downvotes?
- sdenton4 7y ago
  Evil CEOs?
- deleted 7y ago
  [deleted]
- SmokyD 7y ago
  Evil senior mgmt.
- bigmanwalter 7y ago
  Executive compensation is tied to stock prices. By buying back stock, they are increasing demand and decreasing available supply of their stock. This results in the stock price rising, along with executive compensation going up as well. By allowing stock buybacks, we are directly incentivizing this perverse behaviour.
- brockwhittaker 7y ago
  Sure — what are your other options if you have lots of cash? 1. Keep it in cash and get sub-inflationary levels on it, and perform poorly due to your lack of leverage. 2. Invest it in other market securities, effectively running some hedge fund. Not a great idea, distracting from your core biz, and shareholders may not appreciate the exposure to outside risk. 3. Buy back your own stock, which gives back to shareholders. I'm not saying it was the best thing companies could have done with their money, but there aren't a ton of amazing ways to deploy billions of dollars in cash unless you're expanding operations outside your area of core competency. I think that lots of people here are creating a lot of revisionist history right now. Almost nobody had any problem with share buybacks for the past five to ten years. The biggest note was that it would increase stock price over time due to the lower availability of shares and higher earnings per share, but hardly the critique most people have these days.
jm20 7y ago
I really hate that this argument keeps popping up. There's plenty of reasons to hate bailouts or airlines or anything else, but who the hell could have predicted the world was going to shut down like this in 2015-2019? We were in one of the biggest bull markets in the history of the United States, business was good, and the companies used some of that money to buy back stock. People make it sound like they were buying back their stock as they were cutting flights and laying off employees. No business is going to hoard 50 billion dollars in an emergency fund for a pandemic that cuts 90% of revenue, that's just absurd. The reality of the situation is that these airlines employ a lot of people and enable even more commerce and economic activity through their operation. You can disagree with a bailout all you want, but if they go under, the economy most likely suffers by a lot more than $50B.
- t0mas88 7y ago
  The right way to structure this is to issue $50B worth of stock to the government. The airlines can buy it back with future profits to prop up the price once things are back to normal, while keeping the company afloat and retain jobs now. The shareholders would protest, and should be allowed a right of first refusal. Put in money at the same price per share to avoid dilution if you want to. Their alternative is bankruptcy, so they don't have much other options.
  - tathougies 7y ago
    No. The right way is to issue 50B of stock back to the public. The shareholders who received 50B and are holding it in their personal emergency funds can buy it back, or new investors can. There's more than enough private capital available without requiring the government to step in.
    - ceejayoz 7y ago
      It's unlikely the market holds $50B in demand for airline stocks right now. Sending their shares to zero isn't going to help.
      - 7y ago
gfrff 7y ago
Seems like they should sell the government 50 billion dollars of stock at the lower of current prices and 90% of the stock price at the time they did the buy back. They'll have lost money on the buybacks. They'll stay in business though.
ryeights 7y ago
In good times, people complain about companies like Apple "hoarding cash". Now, people complain about companies redistributing profits to their shareholders--many of which are ordinary people holding shares in their 401(k)'s or otherwise. They really cannot win.
- treyfitty 7y ago
  Apples cash hoard was all sitting overseas because it couldn’t be repatriated, no? That’s kind of a different scenario... they didn’t really choose to hold cash. They just didn’t want to pay the tax to bring it to the states.
  - jdminhbg 7y ago
    But once the corporate tax rate was brought back in line with the rest of the developed world, Apple brought the money back to fund buybacks and dividends. When you have more cash than available attention, that's the right thing to do: return it to shareholders.
  - ryeights 7y ago
    >they didn’t really choose to hold cash. I'm not sure what you mean by this, but if companies are going to hold large amounts of cash, it would be fiscally irresponsible not to seek the best possible tax treatment for it within the law. If people think it's inappropriate for companies to hold cash overseas, those concerns should be addressed towards lawmakers.
    - adjkant 7y ago
      When the companies are the main lobbyists of corporate tax law, they effectively become judge/jury/executioner. You can say "Boycott Apple" but that's not really viable either for an injustice that is not seen by most as severe enough to give up something so centrally important to them. That importance should not give Apple a free pass to do any minor things they care to though, regardless of morality. These are not easy problems and for companies to throw their hands up to "well the law says X", especially as they lobby for X to stay, then IMO falls back morally on the company.
vernie 7y ago
"Actually, that was good."
mgh2 7y ago
Video here: https://www.youtube.com/watch?v=x-DNaDlSqBQ https://www.youtube.com/watch?v=x-DNaDlSqBQ
ckastner 7y ago
Having worked in the financial industry for close to two decades, and with most of my friends in the same industry, it is remarkable to what lengths regulators went after the 2008 banking crisis. Banks are vital middlemen between many parties and as such, were already heavily regulated back then, but after the massive tax-payer funded bailouts, regulation went into overdrive. For example, Banks are expected to survive short- to mid-term dire periods. However, the 2008 crisis showed that most banks were not in that position. So the regulators went into overdrive and regulated most of the weak spots they had identified, and (IMO) most importantly, really stepped up stress tests. Banks have to demonstrate that they can survive interest rate shocks, market crashes, political crises, etc. for a certain amount of time. And these things get audited extensively. A friend of mine works at a bank under direct ECB oversight, and the sheer amount of data, models, simulations, etc. they need to produce is just staggering. Perhaps it is time to apply some of these methods to other industries that might only survive with a taxpayer bailout. For example, a global pandemic as we are experiencing right now, is not exactly something that was unimaginable before. Airlines could be expected to maintain contingency plans for such scenarios, and required to maintain appropriate financial buffers, with stock buybacks, dividends etc. forbidden as long as those buffers are below the levels required by those scenarios.
- mabbo 7y ago
  > Perhaps it is time to apply some of these methods to other industries that might only survive with a taxpayer bailout I feel as though the problem here is that we can't survive losing some of these companies. "Too big to fail" is the problem. There's so little diversity in these ecosystem that losing one company is an economic disaster. Maybe the regulations around these sorts of things ought to just apply to any company that represents more than X% of a given industry, or any company worth more than Y% of the entire stock market. And these don't even have to be big X and Y values. If you're that big, you've grown beyond being just a simple company and you've become an integral part of society that must remain functional. Go even further: tax those companies that meet these standards an extra small amount, and then reduce the taxes of their smaller competitors by the same total value. Incentivize competition to increase the diversity, so that there aren't many companies we can't afford to lose.
willart4food 7y ago
So what? The times were right and the opted for a stock buyback with excess cash. I don't own airlines stocks, but when a company where I am a shareholders does a stock-buyback with excess cash I am v=so very happy. I am OK with banning stock buyback during the period between bailout and full repayment of the loan, but what happened before of after the loan should not be part of the argument for the bailout. There are no bad politicians, only bad voter.
sudosteph 7y ago
It's obvious that buy-backs are basically a hack for struggling companies to sacrifice long-time gains for short-term posturing. So what would a fair regulation around stock buy backs look like? We could make it illegal, but that seems like it would favor people who want to do corporate takeovers. Also, I've seen legitimate uses of stock buybacks, such as buying it back to give it as a grant to new employees. We could limit the amount bough or spent, or require that some percentage of stock's bought back be re-allocated to employees as grants or options. I'm not an economic person though, just spit-balling.
- AnimalMuppet 7y ago
  > It's obvious that buy-backs are basically a hack for struggling companies to sacrifice long-time gains for short-term posturing. No, I don't think that's obvious. Buy-backs are used that way, sometimes, but they're also used by companies that are doing well to return some money to the shareholders. Why would they do that, when they could just issue dividends? I can see at least two reasons. First, dividends require one transaction per stock owner, whereas buying stock has much less overhead. Second, dividends create an expectation that you're going to continue to issue them, which is an expectation you may not wish to create. Given that issue with your starting position, I don't think your conclusions are valid.
MrPatan 7y ago
The trick here is, did they have the cash? Or did they bought shares with borrowed money?
legitster 7y ago
I don't necessarily buy this argument - if they would have distributed their earnings via dividend, they would be in the exact same boat (maybe a little bit worse because of the additional tax on dividends). Keeping share prices up is an objective of executive compensation because it benefits the average shareholder. > The reason that I'm harping on share buybacks is that in theory, money for them is supposed to consist of cash that's surplus to the companies' needs. But in the real world, companies frequently borrow money to help fund buybacks. That works great to prop up their stock prices - until one day, there's a problem. I've been told by corporate accountants that this is a huge misunderstanding of how corporate finance works. Companies borrow money all the time for everything, because sitting on cash is the equivalent of slowly losing it.
- andysandwich 7y ago
  I'm not a financial expert, but there's a line in their 10-K's about how their loan agreements prevent them from paying dividends. I think that leaves buybacks as the only way of letting owners take profit from their earnings. Not sure why that's such a moral issue here?
nknealk 7y ago
Two thoughts: * there's a structured process for when a company can't pay its bills but is possibly viable in the long run if it can restructure its obligations called Chapter 11. The airline industry has tons of examples of companies that continue operations through chapter 11 proceedings and end up as profitable on the other side. I don't see why that process is suddenly off limits today. It would require equity holders (and likely some liability holders) to take a haircut, but I'd argue investors knew the risks they were taking given the history of the airline industry. * if the $45B was returned to shareholders in the form of dividends, would that be somehow less evil? I keep seeing articles citing share buyback numbers, but the whole point of publicly traded companies is to return capital to shareholders.
- andysandwich 7y ago
  The airlines also have plenty of access to credit, collateralized by their airplanes. The loan portion of the bailout, from my understanding, is contingent upon them using up all those lines (which they haven't, both Delta & United were each able to borrow $2B in March in preparation for the shutdown). E.g. United borrowed $2B from JPMorgan Chase https://ir.united.com/static-files/fafc24ea-c999-4dc7-b6b3-d0e2212f281b https://ir.united.com/static-files/fafc24ea-c999-4dc7-b6b3-d...
lofikrom 7y ago
I thought part of capitalism was that businesses go out of business.
qzw 7y ago
Banks have legally mandated reserve requirements. Is it time for companies in certain FRB (Frequently Requiring Bailouts) industries to also have some level of required cash reserves? What would be some arguments against, apart from ye olde “too much government regulation”?
BiasRegularizer 7y ago
Almost all major airlines in the world are receiving government bailouts: France, Germany, UK, Japan, Sweden, HongKong, UAE, Singapore. The airline industry is a notoriously cut-throat industry with lots of protectionism from nations, one can't just expect US airlines to sit on $50B cash and not put it to work.
paulgpetty 7y ago
I think there is a lot to weigh on many different levels about whether a bailout juxtaposed against buybacks is a good or bad thing. But I’m surprised by how little talk there is of individual investor opportunity. This seems like the bottom of airline stock prices. Here’s a list of their tickers: https://topforeignstocks.com/stock-lists/the-complete-list-of-airline-stocks-on-the-nyse/ https://topforeignstocks.com/stock-lists/the-complete-list-o... … which stocks would you buy? JetBlue, American & United seem like bargains & no one can guarantee returns financially but lots of people will fly again.
sunstone 7y ago
Sure bail them out and take an equity position.

85 points by spking 7y ago

Just remember that the Federal government ended up making money on the automaker and bailouts (quite apart from all the jobs that were saved).

christiansakai 7y ago
Can you elaborate more? I'm curious on this.
- bpodgursky 7y ago
  The money was loaned to provide liquidity, and paid back with (low) interest. I would need to look it up, but IIRC overall the feds made money on the bailout, especially to the banks, but took a slight haircut on the money they lent to automakers. Of course, that haircut doesn't factor in the benefit in keeping those industries alive and keeping those people employed (IMO very worth the price), but that's a bigger question.
AndrewBissell 7y ago
This is a canard for a lot of reasons, first and foremost because the government has not charged one penny for the enormous subsidy it provides in the form of a now-explicit backstop which allows these companies to borrow at much lower interest rates. Those lower interest rates translate directly into less income for pension funds and savers. Every large investment bank owes its continued existence to the government. Would you say the taxpayers have been sufficiently reimbursed for that? https://www.nakedcapitalism.com/2014/11/aig-bailout-trial-revelation-morgan-stanley-told-geithner-file-bankruptcy-weekend-became-bank.html https://www.nakedcapitalism.com/2014/11/aig-bailout-trial-re...
- ComputerGuru 7y ago
  But it never was about making a return on profit. The solvency and economic growth enabled by these overnight loans (assuming it doesn’t cause bigger problems down the line) is absolutely worth it.
  - AndrewBissell 7y ago
    That's a completely different and opposite point to "the government made money on the bailouts, actually." > (assuming it doesn't cause bigger problems down the line) We're dealing with those bigger problems now, today. The moral hazard created by the 2008/2009 bailouts is a big part of why executives could leverage their companies to buy back stock throughout the 2010s with confidence they would pay no personal price if it ended in tears.
    - ComputerGuru 7y ago
      That’s “it made money on top of everything else, even though that wasn’t even the point,” meaning any money made is a bonus.
dlp211 7y ago
In nominal dollars, not real dollars.
- ComputerGuru 7y ago
  There’s really no such thing when you’re talking about a modern economy. Sure, compare in 2020 dollars (or 2019 dollars, to bypass all this recent volatility) if you must but the real value of a nominal dollar amount is directly affected by the strength of the economy and that is contingent on the bailouts and short-term loans. It’s very circular.
opo 7y ago
>Just remember that the Federal government ended up making money on the automaker ... The estimates I've read are that the federal government lost between 9 and 10 billion on the automaker bailouts. For example: >...In the end, taxpayers lost $10.2 billion. https://www.thebalance.com/auto-industry-bailout-gm-ford-chrysler-3305670 https://www.thebalance.com/auto-industry-bailout-gm-ford-chr... >...the U.S. recovered all but about $9 billion of the auto bailout money. https://www.marketplace.org/2018/11/13/what-did-america-buy-auto-bailout-and-was-it-worth-it/ https://www.marketplace.org/2018/11/13/what-did-america-buy-... >...(quite apart from all the jobs that were saved). Yea without the bailout, there would likely have been more job losses as consolidation occurred in the industry.
- ceejayoz 7y ago
  The automaker bailouts were part of a much larger overall program, that did make a minimal profit. https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program > TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6% and perhaps a loss when adjusted for inflation.
  - basch 7y ago
    Altogether, accounting for both the TARP and the Fannie and Freddie bailout, $634B has gone out the door. Money has been coming back in two ways: $390B of principal has been repaid, and the Treasury has collected revenue from its investments of $364B. In total, the government has realized a $121B profit as of March 19, 2020.
- basch 7y ago
  Luckily they diversified their bailouts, and made $121B so far. https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/

dominotw 7y ago

is there an explanation for stock buybacks that isn't ' evil stockholders'? edit: this was an actual question not a rhetorical one. curious why the downvotes?

sdenton4 7y ago
Evil CEOs?
deleted 7y ago
[deleted]
SmokyD 7y ago
Evil senior mgmt.
bigmanwalter 7y ago
Executive compensation is tied to stock prices. By buying back stock, they are increasing demand and decreasing available supply of their stock. This results in the stock price rising, along with executive compensation going up as well. By allowing stock buybacks, we are directly incentivizing this perverse behaviour.
brockwhittaker 7y ago
Sure — what are your other options if you have lots of cash? 1. Keep it in cash and get sub-inflationary levels on it, and perform poorly due to your lack of leverage. 2. Invest it in other market securities, effectively running some hedge fund. Not a great idea, distracting from your core biz, and shareholders may not appreciate the exposure to outside risk. 3. Buy back your own stock, which gives back to shareholders. I'm not saying it was the best thing companies could have done with their money, but there aren't a ton of amazing ways to deploy billions of dollars in cash unless you're expanding operations outside your area of core competency. I think that lots of people here are creating a lot of revisionist history right now. Almost nobody had any problem with share buybacks for the past five to ten years. The biggest note was that it would increase stock price over time due to the lower availability of shares and higher earnings per share, but hardly the critique most people have these days.

jm20 7y ago

I really hate that this argument keeps popping up. There's plenty of reasons to hate bailouts or airlines or anything else, but who the hell could have predicted the world was going to shut down like this in 2015-2019? We were in one of the biggest bull markets in the history of the United States, business was good, and the companies used some of that money to buy back stock. People make it sound like they were buying back their stock as they were cutting flights and laying off employees. No business is going to hoard 50 billion dollars in an emergency fund for a pandemic that cuts 90% of revenue, that's just absurd. The reality of the situation is that these airlines employ a lot of people and enable even more commerce and economic activity through their operation. You can disagree with a bailout all you want, but if they go under, the economy most likely suffers by a lot more than $50B.

t0mas88 7y ago
The right way to structure this is to issue $50B worth of stock to the government. The airlines can buy it back with future profits to prop up the price once things are back to normal, while keeping the company afloat and retain jobs now. The shareholders would protest, and should be allowed a right of first refusal. Put in money at the same price per share to avoid dilution if you want to. Their alternative is bankruptcy, so they don't have much other options.
- tathougies 7y ago
  No. The right way is to issue 50B of stock back to the public. The shareholders who received 50B and are holding it in their personal emergency funds can buy it back, or new investors can. There's more than enough private capital available without requiring the government to step in.
  - ceejayoz 7y ago
    It's unlikely the market holds $50B in demand for airline stocks right now. Sending their shares to zero isn't going to help.
    - 7y ago

gfrff 7y ago

Seems like they should sell the government 50 billion dollars of stock at the lower of current prices and 90% of the stock price at the time they did the buy back. They'll have lost money on the buybacks. They'll stay in business though.

ryeights 7y ago

In good times, people complain about companies like Apple "hoarding cash". Now, people complain about companies redistributing profits to their shareholders--many of which are ordinary people holding shares in their 401(k)'s or otherwise. They really cannot win.

treyfitty 7y ago
Apples cash hoard was all sitting overseas because it couldn’t be repatriated, no? That’s kind of a different scenario... they didn’t really choose to hold cash. They just didn’t want to pay the tax to bring it to the states.
- jdminhbg 7y ago
  But once the corporate tax rate was brought back in line with the rest of the developed world, Apple brought the money back to fund buybacks and dividends. When you have more cash than available attention, that's the right thing to do: return it to shareholders.
- ryeights 7y ago
  >they didn’t really choose to hold cash. I'm not sure what you mean by this, but if companies are going to hold large amounts of cash, it would be fiscally irresponsible not to seek the best possible tax treatment for it within the law. If people think it's inappropriate for companies to hold cash overseas, those concerns should be addressed towards lawmakers.
  - adjkant 7y ago
    When the companies are the main lobbyists of corporate tax law, they effectively become judge/jury/executioner. You can say "Boycott Apple" but that's not really viable either for an injustice that is not seen by most as severe enough to give up something so centrally important to them. That importance should not give Apple a free pass to do any minor things they care to though, regardless of morality. These are not easy problems and for companies to throw their hands up to "well the law says X", especially as they lobby for X to stay, then IMO falls back morally on the company.

vernie 7y ago

"Actually, that was good."

mgh2 7y ago

Video here: https://www.youtube.com/watch?v=x-DNaDlSqBQ https://www.youtube.com/watch?v=x-DNaDlSqBQ

ckastner 7y ago

Having worked in the financial industry for close to two decades, and with most of my friends in the same industry, it is remarkable to what lengths regulators went after the 2008 banking crisis. Banks are vital middlemen between many parties and as such, were already heavily regulated back then, but after the massive tax-payer funded bailouts, regulation went into overdrive. For example, Banks are expected to survive short- to mid-term dire periods. However, the 2008 crisis showed that most banks were not in that position. So the regulators went into overdrive and regulated most of the weak spots they had identified, and (IMO) most importantly, really stepped up stress tests. Banks have to demonstrate that they can survive interest rate shocks, market crashes, political crises, etc. for a certain amount of time. And these things get audited extensively. A friend of mine works at a bank under direct ECB oversight, and the sheer amount of data, models, simulations, etc. they need to produce is just staggering. Perhaps it is time to apply some of these methods to other industries that might only survive with a taxpayer bailout. For example, a global pandemic as we are experiencing right now, is not exactly something that was unimaginable before. Airlines could be expected to maintain contingency plans for such scenarios, and required to maintain appropriate financial buffers, with stock buybacks, dividends etc. forbidden as long as those buffers are below the levels required by those scenarios.

mabbo 7y ago
> Perhaps it is time to apply some of these methods to other industries that might only survive with a taxpayer bailout I feel as though the problem here is that we can't survive losing some of these companies. "Too big to fail" is the problem. There's so little diversity in these ecosystem that losing one company is an economic disaster. Maybe the regulations around these sorts of things ought to just apply to any company that represents more than X% of a given industry, or any company worth more than Y% of the entire stock market. And these don't even have to be big X and Y values. If you're that big, you've grown beyond being just a simple company and you've become an integral part of society that must remain functional. Go even further: tax those companies that meet these standards an extra small amount, and then reduce the taxes of their smaller competitors by the same total value. Incentivize competition to increase the diversity, so that there aren't many companies we can't afford to lose.

willart4food 7y ago

So what? The times were right and the opted for a stock buyback with excess cash. I don't own airlines stocks, but when a company where I am a shareholders does a stock-buyback with excess cash I am v=so very happy. I am OK with banning stock buyback during the period between bailout and full repayment of the loan, but what happened before of after the loan should not be part of the argument for the bailout. There are no bad politicians, only bad voter.

sudosteph 7y ago

It's obvious that buy-backs are basically a hack for struggling companies to sacrifice long-time gains for short-term posturing. So what would a fair regulation around stock buy backs look like? We could make it illegal, but that seems like it would favor people who want to do corporate takeovers. Also, I've seen legitimate uses of stock buybacks, such as buying it back to give it as a grant to new employees. We could limit the amount bough or spent, or require that some percentage of stock's bought back be re-allocated to employees as grants or options. I'm not an economic person though, just spit-balling.

AnimalMuppet 7y ago
> It's obvious that buy-backs are basically a hack for struggling companies to sacrifice long-time gains for short-term posturing. No, I don't think that's obvious. Buy-backs are used that way, sometimes, but they're also used by companies that are doing well to return some money to the shareholders. Why would they do that, when they could just issue dividends? I can see at least two reasons. First, dividends require one transaction per stock owner, whereas buying stock has much less overhead. Second, dividends create an expectation that you're going to continue to issue them, which is an expectation you may not wish to create. Given that issue with your starting position, I don't think your conclusions are valid.

MrPatan 7y ago

The trick here is, did they have the cash? Or did they bought shares with borrowed money?

legitster 7y ago

I don't necessarily buy this argument - if they would have distributed their earnings via dividend, they would be in the exact same boat (maybe a little bit worse because of the additional tax on dividends). Keeping share prices up is an objective of executive compensation because it benefits the average shareholder. > The reason that I'm harping on share buybacks is that in theory, money for them is supposed to consist of cash that's surplus to the companies' needs. But in the real world, companies frequently borrow money to help fund buybacks. That works great to prop up their stock prices - until one day, there's a problem. I've been told by corporate accountants that this is a huge misunderstanding of how corporate finance works. Companies borrow money all the time for everything, because sitting on cash is the equivalent of slowly losing it.

andysandwich 7y ago
I'm not a financial expert, but there's a line in their 10-K's about how their loan agreements prevent them from paying dividends. I think that leaves buybacks as the only way of letting owners take profit from their earnings. Not sure why that's such a moral issue here?

nknealk 7y ago

Two thoughts: * there's a structured process for when a company can't pay its bills but is possibly viable in the long run if it can restructure its obligations called Chapter 11. The airline industry has tons of examples of companies that continue operations through chapter 11 proceedings and end up as profitable on the other side. I don't see why that process is suddenly off limits today. It would require equity holders (and likely some liability holders) to take a haircut, but I'd argue investors knew the risks they were taking given the history of the airline industry. * if the $45B was returned to shareholders in the form of dividends, would that be somehow less evil? I keep seeing articles citing share buyback numbers, but the whole point of publicly traded companies is to return capital to shareholders.

andysandwich 7y ago
The airlines also have plenty of access to credit, collateralized by their airplanes. The loan portion of the bailout, from my understanding, is contingent upon them using up all those lines (which they haven't, both Delta & United were each able to borrow $2B in March in preparation for the shutdown). E.g. United borrowed $2B from JPMorgan Chase https://ir.united.com/static-files/fafc24ea-c999-4dc7-b6b3-d0e2212f281b https://ir.united.com/static-files/fafc24ea-c999-4dc7-b6b3-d...

lofikrom 7y ago

I thought part of capitalism was that businesses go out of business.

qzw 7y ago

Banks have legally mandated reserve requirements. Is it time for companies in certain FRB (Frequently Requiring Bailouts) industries to also have some level of required cash reserves? What would be some arguments against, apart from ye olde “too much government regulation”?

BiasRegularizer 7y ago

Almost all major airlines in the world are receiving government bailouts: France, Germany, UK, Japan, Sweden, HongKong, UAE, Singapore. The airline industry is a notoriously cut-throat industry with lots of protectionism from nations, one can't just expect US airlines to sit on $50B cash and not put it to work.

paulgpetty 7y ago

I think there is a lot to weigh on many different levels about whether a bailout juxtaposed against buybacks is a good or bad thing. But I’m surprised by how little talk there is of individual investor opportunity. This seems like the bottom of airline stock prices. Here’s a list of their tickers: https://topforeignstocks.com/stock-lists/the-complete-list-of-airline-stocks-on-the-nyse/ https://topforeignstocks.com/stock-lists/the-complete-list-o... … which stocks would you buy? JetBlue, American & United seem like bargains & no one can guarantee returns financially but lots of people will fly again.

sunstone 7y ago

Sure bail them out and take an equity position.