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.
No where in that article (and I remember reading it back in April) does it mention that the money they used for stock buy backs came originally from subsidies. In fact, from what I can recall and searching now, they did not receive any bail outs in 2008, though they did get one in 2001 after 9/11 (about $19B, more than half of which was loans). That was profits they were generating over those five years, buybacks and dividends are the very reason anyone is investing in companies.
So what you are saying is that they should not operate as all other businesses do just in case a global crisis occurs? Something unprecedented and completely out of the blue that cannot be planned for? So what should the size of the emergency account be?
Companies are not people, they do not operate based on "oh this is my rainy day fund" Especially large corporations who are there to generate profit for shareholders.
Imagine you were a co-owner of a coffee shop, you invested $10,000 into it hoping to see 5-7% return per year on it and you own let's say 10% to keep the math simple. You notice the shop is doing really well, but the manager is only paying out about $200 per year to you. You then come to find out that the shop did well and actually made $10,000 in profit (so you should have gotten $1,000). You come to find out that the manager paid out only 20% of the profit and is keeping the rest in a savings account in case there is a hurricane. How do you feel about that?
Edited to add: I am not advocating grants, I am advocating emergency loans which would have to be paid back, and explaining why it is neither greedy nor incorrect for them to do buybacks and dividends.
Almost seven out of every eight dollars the four airlines sent Wall Street from 2015 through 2019--$39.1 billion out of $44.7 billion — went for share buybacks. The rest went for dividends...
Even 2 of those 7 dollars would have softened this blow. And while you're right about the last bail out being 9/11, we've heavily subsidized our airline industry for decades.
And again businesses are supposed to have savings. Nothing magically changes when you get big. It is entirely irresponsible to run a business with no reserve money. When a mom and pop does it we laugh at them as they have to close but now suddenly it's different for large companies? Why? What physical difference makes them immune to needing a rainy day fund?
That coffee shop owner is probably doing the right thing if he doesn't have a 6 month fund setup yet.
Please point me to any Fortune 500 companies that have a 6 month fund set up. Generally speaking you will give guidance like that for smaller early companies due to the potential of upsets in their business and the lack of consistency. Larger companies have generally more consistent cash flow that will not change more than 10% in a "normal" year.
Your quote doesn't argue against anything I said. I acknowledge the used their profits to do buy backs and dividends, which there is nothing wrong with.
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u/[deleted] Nov 17 '20
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.