Bailouts (Airlines)

[tulak]

Thanks for pointing this out Midpack. I have the exact same feelings. For some reason we expect all the luxuries at a cheap price. If you want to fly more comfortably, then pay up. I’m more than happy to save money by not checking luggage, etc. Why should I subsidize others that want check-in luggage to be included in the cost of all plane tickets?

I don’t remember the exact amount, but when going through my mom’s paperwork after she passed I found a receipt for a plane ticket bought for my grandparents in the 1970s. It was around $1700 from Europe to the US. Eh, now I don’t remember if that was per person or for both. But even at half that, that’s a lot more than you would pay today. Now I’m curious. I’ll see if I can find the receipt later today.

Either way, lots more than it costs now.

 

[Fermion]

If the airlines go bust, consumers will suffer in the long term because of reduced competition.

Say goodbye to that $400 flight across the country if flying gov. airlines. Hello $1500 fare.

 

[aja8888]

If the airlines go bust, consumers will suffer in the long term because of reduced competition.

Say goodbye to that $400 flight across the country if flying gov. airlines. Hello $1500 fare.

Makes my semi annual vacation driving trips even more enjoyable.

 

[pb4uski]

There need to be natural consequences for bad management and bad decisions... I'm not keen on bailing them out.

 

[cbo111]

How I long to have enough $$ to use NetJets, but the $200K for a 25-hour card is a bit steep for my blood.

 

[Fermion]

There need to be natural consequences for bad management and bad decisions... I'm not keen on bailing them out.

Right...the management should have known China would have an illegal wild animal market and then hide the fact that there was a new virus outbreak for over a month.

 

[Tiger8693]

Lots of valid criticisms here, but again we’re not acknowledging the role passenger-customers and shareholders have played.

Passengers are treated like cattle because most passegners rewarded lowest fares above all else. The no frills ultra discount airlines grew while the traditional incumbents lost ground - they had to adapt because most of us were too cheap to pay for more room/service. You can still buy a first class seat if you want more room. But it’s disingenuous to demand lower fares and the same or more room/service - can’t have both.

There’s no forgiving some of the short term thinking some boards and execs have engaged in but shareholders and analysts instantly punish these companies stock prices if they fall short of expectations even a little.

More often than not we get what we deserve in politicians, media, airlines - you name it. "We" like to throw stones and act like innocent bystanders but "we" almost never are.

+1

 

[Scrapr]

Right...the management should have known China would have an illegal wild animal market and then hide the fact that there was a new virus outbreak for over a month.

Or instead of buying back stock with 96% of free cash flow for last[-] 5[/-] 10 years they could build a war chest. Perhaps the Government takes a stake in the airlines/Boeing and makes them earn out the bail out and also build a cash reserve equal to the bail out. Then make sure they don't "invest" that reserve on boondoggles

They don't have to have known that this specific thing happened. But that there are black swans that will happen. And they need to be prepared for that.

https://www.bloomberg.com/news/arti...-spent-96-of-free-cash-flow-on-buybacks-chart

 

[pb4uski]

Right...the management should have known China would have an illegal wild animal market and then hide the fact that there was a new virus outbreak for over a month.

No, but they should have kept some money for a rainy day rather than spend it on huge stock buybacks... now when they hit a big bump in the road they don't have what they need to absorb it.... and there should be consequences.

 

[Fermion]

But you can say that about (insert here) other things too. Californians should know that there will be a major quake one day so they should not be bailed out if they choose to live there and it happens. Same thing with coastal cities and hurricanes.

The airlines are shutting down because of government actions, so I don't see a problem with the government bailing them out.

 

[pb4uski]

But you can say that about (insert here) other things too. Californians should know that there will be a major quake one day so they should not be bailed out if they choose to live there and it happens. Same thing with coastal cities and hurricanes.

The airlines are shutting down because of government actions, so I don't see a problem with the government bailing them out.

Stop writing falsehoods. None of the major airlines are shutting down.... slowing down yes... planes are only 25-50% full according to a report I heard today and I'm sure it hurts them financially.

One small United affiliate announced plans to shut down on April 1 and that affiliate was already planning to shut down by year end.

Why should taxpayer's bail out a private enterprise? Let it go bankrupt, the management and shareholders take their lumps and others will step into the void and take over if it is a viable business.

To help our fellow citizens in a natural disaster is one thing, but to bail out businesses and managements and shareholders for poor decisions or bad luck is not something that taxpayers should be doing.

 

[Bir48die]

No, but they should have kept some money for a rainy day rather than spend it on huge stock buybacks... now when they hit a big bump in the road they don't have what they need to absorb it.... and there should be consequences.

Kind of like the government who can’t stay within a budget and will spend every nickel they have and then someone else’s.

 

[pb4uski]

^^^^ I hear you, but one crisis at a time.

 

[Markola]

There need to be natural consequences for bad management and bad decisions... I'm not keen on bailing them out.

+1. No bailouts. Let them go into Chapter 11, as they have before, to keep operating while wiping out all the stock the executives bought back with corporate cash instead of spending it to make flying a better experience.

 

[USGrant1962]

Or instead of buying back stock with 96% of free cash flow for last[-] 5[/-] 10 years they could build a war chest. Perhaps the Government takes a stake in the airlines/Boeing and makes them earn out the bail out and also build a cash reserve equal to the bail out. Then make sure they don't "invest" that reserve on boondoggles

They don't have to have known that this specific thing happened. But that there are black swans that will happen. And they need to be prepared for that.

https://www.bloomberg.com/news/arti...-spent-96-of-free-cash-flow-on-buybacks-chart

I agree that the stock buybacks got out of hand prior to the current bear market. But no reasonable cash reserve would have mitigated this mess for airlines or anyone in the travel industry. Stock buybacks are generally considered to be a replacement for dividends, and that's why dividend yields are half what they were decades ago. Either one is a return of profits to the shareholders.

I don't see anyone around here complaining about dividends...

Having said that, I'm in favor of only minimal government support to ensure that we have an operating air transportation system. Bankruptcy has worked in the past for airlines.

I remember a United flight attendant ending the safety briefing with "We know you have your choice of bankrupt airlines, and are pleased that you chose United!"

 

[Ian S]

"Privatize profits, socialize risk" It's the American business mantra.

 

[dixonge]

Thousands of layoffs and massive ripple effects. Another mortgage crisis and wave of foreclosures. You guys seem like you would just rather watch industries burn while toasting s'mores over the fire, even though it would send us into a depression that would decimate your retirement investments and force you to live in a tent in the woods.

But hey, at least you didn't have participate in a bailout! Enjoy...

 

[Fermion]

Thousands of layoffs and massive ripple effects. Another mortgage crisis and wave of foreclosures. You guys seem like you would just rather watch industries burn while toasting s'mores over the fire, even though it would send us into a depression that would decimate your retirement investments and force you to live in a tent in the woods.

But hey, at least you didn't have participate in a bailout! Enjoy...

They don't care, they have a pension, which will get bailed out no matter how much it was mismanaged.

 

[Ian S]

Thousands of layoffs and massive ripple effects. Another mortgage crisis and wave of foreclosures. You guys seem like you would just rather watch industries burn while toasting s'mores over the fire, even though it would send us into a depression that would decimate your retirement investments and force you to live in a tent in the woods.

But hey, at least you didn't have participate in a bailout! Enjoy...

Actually, I for one understand how we have to do bailouts but I think this time, we have to attach strings to the money doled out. What shape those strings assume is up to experts in these sorts of things but we've seen way too many examples over the years of businesses gaming the system by putting most if not all risk on the public purse and grabbing all the profits for themselves. It can't continue to work that way. I think this is a good start for discussion: https://markets.businessinsider.com...bailouts-coronavirus-crisis-2020-3-1029006340

 

[audreyh1]

My problem with this is the huge amount of money airlines have spent on a stock buybacks.

No point in saving for a rainy day then?

Exactly! Grasshoppers!

Chapter 11 and debtor in possession financing. Stop rewarding the bad behavior.

Indeed!

 

[travelover]

The first action after a company is mismanaged into bankruptcy is huge retention bonuses for all the execs that ran it into the ground. And people wonder why the public is cynical.

 

[Fermion]

I would be ok with bailout money having limits attached to it. Say executives cannot be paid more than 10x the salary (and bonuses) of the lowest salaried employee. No stock or option grants, no dividend payments, no buybacks. If you pay back all the bailout money you can go back to doing whatever.

 

[Markola]

I would be ok with bailout money having limits attached to it. Say executives cannot be paid more than 10x the salary (and bonuses) of the lowest salaried employee. No stock or option grants, no dividend payments, no buybacks. If you pay back all the bailout money you can go back to doing whatever.

Or executive bonuses, per Goldman Sachs, et al in 2009.

 

[pb4uski]

I would be ok with bailout money having limits attached to it. Say executives cannot be paid more than 10x the salary (and bonuses) of the lowest salaried employee. No stock or option grants, no dividend payments, no buybacks. If you pay back all the bailout money you can go back to doing whatever.

IIRC a lot of the TARP Capital Purchase Program were preferred stock that had strings attached... a relatively low dividend rate for the first few years and then a higher dividend rate.

The reality is that some of the banks didn't really need or want the money but Paulson told them that they all had to take it.... if only those that really needed it and wanted it had taken it it would have sent vibes that those banks were troubled banks... sort of like the Fed payout window... no one wants to go near it unless they have no other choice.

 

[Markola]

Not precisely an airline, but it’s good to see that there is at least some bipartisan resistance to the headlock some major corporate lobbies are attempting to put our government in. They built a big company based partly on government contracts, spent the cash on stock buybacks to benefit executive compensation (instead of ensuring their airplanes were safer), and now they expect their tin cup to be filled by a suffering public. I hope more pols from both parties resist following this good example:

Nikki Haley Resigns from the Boeing Board Over its Pursuit of a Bailout: https://www.politico.com/news/2020/03/19/nikki-haley-boeing-resign-138086