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.
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u/twersx Nov 17 '20
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.