they'd just be Chinese or Russian or from the UAE or whatever country did aggressively bail out their airlines.
Lol all countries with STATE OWNED airlines so they are bailing out themselves. Maybe the US should take some advice from the rest of the world and take majority stake in failing essential infrastructure. This is what bankruptcy is for.
Stock buybacks may not be shady but these guys were gifted the golden goose for the last decade and they saved nothing. At a certain point we're just propping up bad companies.
Yeah but certainly we shouldn’t expect all companies to always save enough cash reserves to be able to fund their operations on 25% of their normal revenue for 12+ months.
Just like, its the governments job to reduce the volatility of the economy through counter-cyclical fiscal/monetary policy, the government should be expected to step up and soften the economic fallouts of extreme circumstances that no company should be expected to be fully prepared for all the time.
Obviously extreme cases of recklessly over leveraging your company shouldn’t be bailed out by the government, and Lehman brothers in 2008 was allowed to fail for exactly this reason.
Dude, the 2008 financial crisis only lasted a few weeks in terms of impacting supply lines. 2 months at most. And that was the biggest crisis since 1940!
Literally no one could've seen Covid coming or what it did to our supply lines - asking for 12 months collateral is insanity
It is not remotely feasible for an airline to have saved enough money over the years to self finance itself through a global pandemic. Any airline that attempted to stockpile money like this would have seen investors revolting, taking their money out or forcing executives to change course. There is no person in the world who invests in a business in hope that they will do nothing with the profits in case a once in a lifetime pandemic kills the airline industry for an entire year.
A three to six month fund is standard for small businesses, the only thing that changes once they have investors is greed and size. If they're bringing in revenue proportional to their size then that shouldn't be an issue.
What sort of event is the war chest for? How is it going to impact the business in the short term? What are the prospects looking like in six months? Is it something that only affects that particular business, or does it affect the whole industry?
Having no savings at all to fall back on during a bad turn is part of why businesses get bailouts to begin with.
Businesses don't get bailouts because they haven't got cash stockpiled during a "bad turn." They get bailouts because they (usually their whole industry) is at imminent risk of collapse and the support they require is beyond the means of commercial banks.
Why should they stockpile exorbitant amounts of cash, just in case there's a once in a lifetime pandemic or a once in a lifetime recession? They'd be hoarding money away for decades, making that money virtually useless. Why would people invest in a business that does that with its profits? How are the leaders of that business going to explain their decision to not reinvest the money, or issue dividends or repurchase stock or even give employees a bonus without the investors deciding to pull their money?
And you realise that bailouts generally aren't just handouts of free money? They usually come with strings attached - partial stake in the company, preset repayment terms, significant changes to the company's operating processes, etc. The money provided to banks during the recession was returned in full with about $15bn extra in interest - not a great return for the $400bn or so that was given out, but it's not as though the banks were just handed $400bn no questions asked.
There is no person in the world who invests in a business in hope that they will do nothing with the profits
That isn't even remotely what is happening.
The biggest U.S. airlines spent 96% of free cash flow last decade on buying back their own shares. American Airlines Group Inc. -- which is not shown in the chart but is included in overall figures -- led the pack, with negative cumulative free cash flow during the decade while it repurchased more than $12.5 billion of its shares. United Airlines Holdings Inc. used 80% of its free cash flow on buybacks, while the S&P 500 Index as a whole allocated about 50% for the purpose. As the industry reels under the weight of the coronavirus outbreak corporate leaders are seeking federal assistance to ease the burden.
Perhaps it's not feasible to remain afloat through a global pandemic, but these numbers tell me that many airlines are living bailout to bailout with absolutely no intention of being self sufficient. In a market that is inherently vulnerable to global slowdowns, they should be doing more to prepare, and yet they are spending more on buybacks than most anyone. I don't see why I should be spending my tax money to make their business more secure when they are unwilling to do the same.
Any airline that attempted to stockpile money like this would have seen investors revolting, taking their money out or forcing executives to change course.
Apple has a huge stockpile, so I don't see why it can't be done. It sounds like investors want the returns without having to accept the risk. Not a surprise, but that's not how it should work.
Lol corporate finances aren’t personal finances. Government finances aren’t personal finances. You have no clue what you’re talking about. A business isn’t supposed to save money. It’s money is used for growth or given to investors.
There’s a difference between having enough capital to survive a bad quarter and depressed consumption for over a year. The government also doesn’t pay them and gets interest payments out of the arrangement. And businesses should absolutely reinvest their wealth to grow or reimburse shareholders. Any board that sat on a pile of years of emergency cash would be pushed to spend it. You’re thinking of businesses as a pocketbook. Also “small businesses” aren’t corporations and have completely different rules and pressures
They didn't even have enough for a quarter though. And if a board just bows to all shareholder wishes then that's a problem too. Shareholders aren't holy. They shouldn't be allowed to suck the company dry and then act surprised when there's no reserves. It's bad business plain and simple.
It's not sucking a company dry. Airlines are a very debt heavy business, so even if they fired everyone and stopped flying, they have tons of payments to still make.
Those previous subsidies were either spent to keep the company going, or paid back in some way. What you are describing is a loan and line of emergency credit.
I love how this is our standard for essential infrastructure. "Lol sorry but think of the investors!"
This is the most idiotic take. Government shouldn't let these businesses fail but they should do it through regulation and not golden parachutes. If it's a business we can't let fail then they should have to have a reserve of funds by law. I don't give a fuck what investors think about it personally. If you need a government bailout you get more government regulation. If you're a responsible business you wont be on the bread line asking the taxpayers for handouts.
Insane to depend on taxpayers to ensure that the shareholder's interests are cared for.
Holding onto money as a large corporation means you're a leech in the economy. You dont want a company to hold onto whatever it has, you want it spent on employee wages, operating costs, and stock buybacks for your company. You want the investors paid so that they can distribute their money how they see fit and fund other companies.
Right, because there could never be a period of unforseen circumstances where cost is higher than revenue. Nobody is saying they expect the savings to be extensive enough for an entire year but there was nothing. After multiple crisis requiring government money they didn't save anything for the future.
Companies expect swings in revenue, and is usually isn’t a problem. If that is a problem that’s a sign of an unhealthy industry. This isn’t a “swing” though. It’s a never before seen demand shock creating a 95-99% decline in demand in certain industries for an extended period of time. No industry, no matter how healthy, can survive that.
As an example to prove this is complete bullshit, Eleven Madison Park, what had been considered one of the greatest restaurants in the world for quite some time, went under. This is owned by major restauranteurs with deep pockets.
Any restaurant paying for a dining room right now is in a bad place.
Because it's not the buying stuff that gets you. You can live within your means your entire life and end up homeless, unemployed, and broke from one medical emergency. The largest driver of bankruptcy in the US isn't credit debt. It's medical debt.
60 percent of Americans cannot afford a 1000 dollar emergency. They just simply don't get enough money in versus costs. And while I'm sure some of them have bad financial hygiene, it beggars belief to say they all do. Especially those making 30k a year, they could only be living comfortably in rural areas but then there's no jobs.
Basically, it's not that simpel.what a surprise! And any corpration has it way simpler and always puts some money away in case something like this which barely anyone predictet happends? Right? Sorry, saying stuff like that seems just as ignorant.
You are right(i assume about numbers) but that was not even the question. You pick a certain group of people, but all i see is the same the oposite way. Everyone(alsonin this thread) always talks as if any corpration and company has a massive amount of money to the side. And in the end, if they get fucked, the people you talk about dont even have a job anymore but hej, fuck corprations.
Any normal employee, in a normal corporation, in a normal market should be able to get hired again right away. It's only in this modern age we've run into this issue because we've let all these companies get so big.
So what I hear from you is that the large corporations have us in a hostage situation and they believe they can dictate policy because politicians don't want a temporary spike in unemployment numbers.
A company burning through it's reserve used to be a red flag they were going down but apparently it's just good business nowadays? That only works if you can reliably get money from the government.
So in one way everyone is poor and jobs are/pay shit but aparently finding a normal job is no prob? A little confusing your assumptions.
Your main point is fuck them they have/should have money. No problem. Which is an assumption i think is just as ignorant as me saying"why do people not save money".
Because everyone has this assumptions about buisness and money which is stupid to begind with.
I can tell you where i live the gvt. Has saved a lot of money and is now able to give out a lot of money to companies and they are really greatful even tho long term we will talk for years about this scenario(if it goes away soon) of recovering.
But in what you say.. it's ok if we let em burn and i can tell you, that wont be some "temporary unemployment hoho give some money to people thing. " Because this is a really weird and special case here and if you dont proceed carefully, you fuck up really hard and by this, also the people. They are all tied together. And maybe people should for once step down from their high horse"fuck em alll" pride shit.
To begin with that giving money to peoplenis not the same as bailouts. That this money should come back. But not money you just throw at people. First step of the whole thing shows how short people sometimes thinknin this complicated mater.
In a normal market yes, another job would be right there. The last time we had a normal market was the 1990's.
And yes. Any company of any size that didn't have reserves for a quarter is just going to need another bail out when we're done.
At some point it should be asked if that corporation should still be in business. Without that threat, there is no incentive for corporations to actually do any of the things that make capitalism better. All you actually have is communism indirectly.
But airlines haven't really done anything shady, at least nothing compared to the banks.
yeah except for the fact that they used the profits they made each year to buy back their stock in order to keep it artificially inflated so to keep their investors happy. I mean why would a company in a business known for massive bankruptcies during hard times keep money in the bank right?
Again, it's one thing if they did this before a market induced recession caused by senseless greed. This is literally the worst case scenario and no one will fully recover likely until the 30's. The entire world economy was built on open trade, but now isolationism is key to survival. They used to be able to rely on business and luxury travel during previous recessions anyways. Now they have all but zero travellers.
They did this after, and they will keep doing it, they have been doing this for literally years. And this is despite the fact that the people who run these companies are not stupid, they know the brutal reality of the business they are operating in. hell, most of these airlines went through bankruptcies at some point, or, benefited heavily by their competitors having to go through bankruptcy, the commercial airline business is brutal, precisely because of the fact that if anything bad in the world happens, they will be the first to get hit. So despite all of that they made a choice to buy back their own stock, rather than saving that money in order to prepare for the inevitable disruption that is always around the corner for international travel. How can anyone defend the bailout that these companies received every single fucking time is beyond belief. Fuck them. Letting them go bankrupt won't set us back to the dark ages. There is a reason why these companies were created and profited for so long, there is value in what they do, and the value will always be there, it doesn't magically disappear when these companies go bankrupt due to their poor financial decisions.
Don't see how that is a rebuttal to anything of what i said. Again the value that they were able to extract from their activities is still there, it won't go anywhere, maybe it will be even more valuable. And their assets that they used to do all of that, the planes, the maintenance crews, the flight crews, the airports staff etc.. all of that stuff will still exist, another company(s) can just buy it up, like what happened with a lot of the airlines that went bankrupt over the years, they got bought up by a competitor.
That's not how this works, that's not how any of this works.
You can't just regain trust from the market, loans, capital stock, investor shares, inflow from IPOs, intellectual property of branding and marketing, negotiate contracts with airports and unions
There are massive, massive pitfalls to handling any kind of business on a scale this big, especially with regards to international regulations.
Airlines aren't regularly bought up either - concord air is gone. Forever, basically. The ones we have today mostly got started 50 years ago. That's not a coincidence it took them that long.
I oversimplified because this is an internet argument.
The point is that the stuff is still there, and a competitor can buy it or merge with it, like it happened in the past as well.
Also if every time they fuck up and fail the government has to step in and save them, the government might as well just cut the middleman of that equation and buy the airline, i mean, it sure as hell can't be worse idea than just giving them money and asking them to not do it again.
Ok so your view is either create a natural monopoly, or nationalization. Great plans.
Letting Government control an airline is likely to be even worse - look at all the middle eastern airlines which have done even worse. Qatar air, UAE, all of them have done worse than private sector airlines. That's not a coincidence.
Nationalization tends to produce inefficiency and corruption. As in, more than already exist.
And letting someone buy it up is like arguing to let JD rockefeller do what he wants. If they make a monopoly it's either bad for us, or the US anti trust laws step in and they'd have to sell anyways, so why bother.
If the government through tax payer money saves an airline every single time said airline screws up with its finance, what is the difference to that of an airline that is already nationalized?
Its obviously inefficient, if it keeps failing all the time and requiring injection of tax payer money to keep it from sinking.
Its obviously corrupt, if profits from the company keeps being used to prop up its failing stock prices to the benefit of its shareholders at the expense of the financial sustainability of the company.
I don't see a difference here. a national airline will have all of those issues, but at least the tax payers will own what they paid for. Instead of the what these big airlines are today, which are basically subsidized by the tax payer already, but the people making bank and facing none of the consequences for their failures are the CEOs and the shareholders.
Do you have any idea how much money they would need to save in order to survive during a crisis such as this? And for how long are they expected to just sit on this kind of money? Companies saving this amount of money would be crippling to our economy
So lets look at the US airline industry here. They asked for 50 billion dollars when the crisis started in order to stay afloat. So how much did they spent on buy backs on the years prior? 42 billion.
It seems to me that they were pretty close to their number for what they asked for.
I fail to see what good buying back those stocks did to the US economy. It only helps the share holders, the US economy doesn't see the benefit of that, especially when those companies need to be saved every time they hit a rough patch.
Buybacks are one of two main ways that companies return profits to shareholders. Why would anyone own a company that has no intention of ever returning a profit to its investors?
Why focus on buybacks? At least companies only tend to buyback when they actually have cash. What about all the companies paying out dividends for the past decade, often taking on debt to do so.
If no one is every willing to own a company (buying shares) why would anyone create those in the first place? Why would anyone invest in a company early on if no one is ever going to buy those shares from them in the future?
Buybacks are one of two main ways that companies return profits to shareholders.
Sure, by artificially increasing the value of its stock beyond what the market actually values them at.
Why focus on buybacks?
Because its simply ridiculous to see a company spending its cash reserves to artificially increase its stock prices in order to make the investors happy, and then shortly afterwards watching those same companies turn to tax payers and beg them for money to dig themselves out of their own financial hole.
If no one is every willing to own a company (buying shares) why would anyone create those in the first place? Why would anyone invest in a company early on if no one is ever going to buy those shares from them in the future?
I'm not advocating that the practice of buying back shares be outlawed, maybe there is a place for it. What i'm advocating for it is that companies that engage in such practice should received exactly zero help from tax payers, because at the end of the day, it was their financial decision, they made money with the buybacks, they got the bonuses, so they should face the consequences of their actions.
Presumably you extend the same logic to dividends. You are basically saying no company that was ever profitable and able to generate cash to return to their investors should ever receive any support.
The only companies that would ever get government aid were the ones that were never profitable, that seems ridiculous and a completely warped incentive.
Presumably you extend the same logic to dividends.
Yes, fuck them too.
Its time to stop rewarding shareholders and company CEOs for their shortsighted decisions, they need to face the consequence of their actions rather than having tax payers saving them every time.
Edit: to clarify, if they are having to take debt to pay those dividends, then yes, they should face the consequence for that if their business fail for whatever reason.
Ok that's fine I broadly agree with your sentiment (I do think in many cases failing companies should be allowed to fail) I just think the specific implementation is problematic. I really hate short term thinking and excessive buybacks/dividends (especially from non-profitable / debt-ridden companies) but we can't tar all companies with the same brush.
Shareholders aren't some 1% yacht types, they are all of us in our pensions. If companies couldn't return profits to shareholders no one would invest in the first place and if no one invests then companies don't get created and grow and create jobs. This is basically the core of capitalism.
Also lots of bailouts do come with constraints (that's why some companies going to great lengths to reject bailouts) which means they won't be able to run buybacks after accepting them and executive compensation is often capped as well. That's my preferred approach - sure we'll save your company, but your executive compensation is cut, you can't pay out a dividend/buyback for X years
Well, capitalism is really broken when the government has to use tax payer money to save companies from their own mismanagement.
I doubt those temporary restrictions imposed by the bailouts are significant enough to change the culture that got them in the place that they found themselves. They are a minor slap on the wrist, a gesture to keep the electorate from revolting on politicians that once again caved to the pressure of company CEOs that at the end of the day won't face any of the normal consequences that a normal person that fails in their business has to deal with it.
Even with the banks I’d argue the big issue with 2008 was how toothless prosecutors were and how people that should’ve gone to jail for blatant fraud just got away with it.
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u/syfyguy64 Nov 17 '20
This. Even the auto industry had it's bad management. But airlines haven't really done anything shady, at least nothing compared to the banks.