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I specifically haven't taken my loan yet because I do not need it. I have heard similar stories and it rubs me the wrong way to think of how many people are tak

I specifically haven't taken my loan yet because I do not need it. I have heard similar stories and it rubs me the wrong way to think of how many people are taking advantage of the system and displacing others who need it more. To play devil's advocate, though, it is hard to watch corrupt institutions like American Airlines get billions in bailout money and not feel like you deserve to claw as hard as you can to get your own (dismal) slice of the pie.

rayiner 6y ago
The loans aren’t supposed to be need-based charity. They’re an economic measure intended to preserve the status quo during the shut down—to keep the economy’s web of obligations from unraveling. If you saw your revenue fall, you were supposed to get a loan so you didn’t fall behind on your payroll, etc. American Airlines got the loans and should have gotten the loans. Airlines are low-margin businesses. Last year, AA had $45.8 billion in revenues and $42.7 billion in expenses. Airlines are always living in the edge of a small shift in one of those numbers pushing them into the red. During the first quarter of this year it had $8.5 billion in revenue and $11.8 billion in expenses—almost completely wiping out all of last’s year’s profits. And that was just through March! If AA didn’t get the loans, it would have to lay everyone off, suppliers would stop getting paid, etc., and that would trigger exactly the unwinding of the economy that would make recovery protracted and painful.
- malwarebytess 6y ago
  Is AA the airline that spent their incredible surpluses on stock buybacks which put them in a financially vulnerable position?
  - rayiner 6y ago
    From July 2014 to December 2019 AA spent $12.4 billion in stock buybacks. Over that period, they had $235 billion in revenue and $200+ billion in expenses. Is it unreasonable to return $12 billion to investors over that period, amounting to 5.1% of revenue really so unreasonable? By comparison Google bought back $18 billion of shares last year, amounting to 11.1% of revenue.
    - eberkund 6y ago
      Yes, it is completely unreasonable. $12B represents a far more significant sum to AA than it does to Google. - Unlike AA, Google has enough cash on hand to cover expenses for close to a year - Unlike AA, the service Google provides is not commoditized and highly profitable - Google's market cap is 100x that of AA - Unlike AA, Google's services are not highly susceptible to disruption by things like fossil fuel prices, terrorist attacks, politics and global pandemics
      - londons_explore 6y ago
        > - Unlike AA, Google's services are not highly susceptible to disruption by things like ... Advertising is actually one of the first things to be scaled back in an uncertain economy, and due to the way most of Google's advertising business is based on auction based pricing, if 1% of companies pull their ads, Google will lose more than 1% of revenue, since prices also fall, so there is an amplification effect. Google is still in a much better position than AA though.
    - supercollision 6y ago
      Hindsight is 20/20, and not really fair, but leaving any judging tone out of it, yes, AAL would have benefited from more cash on hand. Or, maybe it was the right decision after all if they get bailed out. There's also more than revenue and profits.... AAL may also have had debt or a lack of spare cash; I couldn't find exact breakdowns but some articles suggest their buybacks caused negative free cash flow https://www.bloomberg.com/news/articles/2020-03-16/u-s-airlines-spent-96-of-free-cash-flow-on-buybacks-chart https://www.bloomberg.com/news/articles/2020-03-16/u-s-airli... Contrast with AAPL and GOOG who had, and have, tons of cash on hand. As of 2019, $102B and $117B respectively, which makes them them #2 and #1. https://www.latimes.com/business/story/2019-07-31/move-over-apple-theres-a-new-cash-king-googles-parent-alphabet https://www.latimes.com/business/story/2019-07-31/move-over-...
- cameldrv 6y ago
  They are supposed to be need based. You have to certify that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."

rayiner 6y ago

The loans aren’t supposed to be need-based charity. They’re an economic measure intended to preserve the status quo during the shut down—to keep the economy’s web of obligations from unraveling. If you saw your revenue fall, you were supposed to get a loan so you didn’t fall behind on your payroll, etc. American Airlines got the loans and should have gotten the loans. Airlines are low-margin businesses. Last year, AA had $45.8 billion in revenues and $42.7 billion in expenses. Airlines are always living in the edge of a small shift in one of those numbers pushing them into the red. During the first quarter of this year it had $8.5 billion in revenue and $11.8 billion in expenses—almost completely wiping out all of last’s year’s profits. And that was just through March! If AA didn’t get the loans, it would have to lay everyone off, suppliers would stop getting paid, etc., and that would trigger exactly the unwinding of the economy that would make recovery protracted and painful.

malwarebytess 6y ago
Is AA the airline that spent their incredible surpluses on stock buybacks which put them in a financially vulnerable position?
- rayiner 6y ago
  From July 2014 to December 2019 AA spent $12.4 billion in stock buybacks. Over that period, they had $235 billion in revenue and $200+ billion in expenses. Is it unreasonable to return $12 billion to investors over that period, amounting to 5.1% of revenue really so unreasonable? By comparison Google bought back $18 billion of shares last year, amounting to 11.1% of revenue.
  - eberkund 6y ago
    Yes, it is completely unreasonable. $12B represents a far more significant sum to AA than it does to Google. - Unlike AA, Google has enough cash on hand to cover expenses for close to a year - Unlike AA, the service Google provides is not commoditized and highly profitable - Google's market cap is 100x that of AA - Unlike AA, Google's services are not highly susceptible to disruption by things like fossil fuel prices, terrorist attacks, politics and global pandemics
    - londons_explore 6y ago
      > - Unlike AA, Google's services are not highly susceptible to disruption by things like ... Advertising is actually one of the first things to be scaled back in an uncertain economy, and due to the way most of Google's advertising business is based on auction based pricing, if 1% of companies pull their ads, Google will lose more than 1% of revenue, since prices also fall, so there is an amplification effect. Google is still in a much better position than AA though.
  - supercollision 6y ago
    Hindsight is 20/20, and not really fair, but leaving any judging tone out of it, yes, AAL would have benefited from more cash on hand. Or, maybe it was the right decision after all if they get bailed out. There's also more than revenue and profits.... AAL may also have had debt or a lack of spare cash; I couldn't find exact breakdowns but some articles suggest their buybacks caused negative free cash flow https://www.bloomberg.com/news/articles/2020-03-16/u-s-airlines-spent-96-of-free-cash-flow-on-buybacks-chart https://www.bloomberg.com/news/articles/2020-03-16/u-s-airli... Contrast with AAPL and GOOG who had, and have, tons of cash on hand. As of 2019, $102B and $117B respectively, which makes them them #2 and #1. https://www.latimes.com/business/story/2019-07-31/move-over-apple-theres-a-new-cash-king-googles-parent-alphabet https://www.latimes.com/business/story/2019-07-31/move-over-...
cameldrv 6y ago
They are supposed to be need based. You have to certify that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."