
Most airlines face bankruptcy by end of May, industry body warns - hhs
https://www.ft.com/content/30a3a26e-674f-11ea-800d-da70cff6e4d3
======
olivermarks
I highly recommend Matt Stoller's book 'Goliath' about the 100 year battle
between US democracy and monopoly. Also his current newsletter 'big' which
brings the book up to date for what is happening right now.
[https://mattstoller.substack.com/p/how-to-structure-the-
coro...](https://mattstoller.substack.com/p/how-to-structure-the-
coronavirus?utm_medium=email&utm_campaign=cta) Forget 'rainy day' funds - the
vast majority of modern businesses are financialized ATMs to pull value out of
massively leveraged assets to distribute to a tiny percent of humanity.
Airlines are a good example of this. They'll get bailed out but hopefully
there will be some guard rails put in place to prevent these funds going to
pay for shareholder executive jets and yachts

~~~
addicted
Honestly, if you look at the FAANGs as well, possibly the most successful
current businesses, 2 out of the 5 are just ad dependent. If there was a new
revolutionary method of as delivery that supplanted mobile/web, then Google
and Facebook would basically go the way of print media, but worse, because
print media at least bought some time by being 50% ads and 50% subscriptions
usually.

I don’t understand Amazon so I can’t really comment on it.

Netflix would probably do fine.

Apple would also likely do fine overall, but growth would reduce. It remains
to be seen if the slowing growth would lead them to throw away what’s made
them successful.

~~~
olivermarks
Now that the tide is out we'll see who is swimming naked.

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fxtentacle
Oddly enough, all the European airlines that they mention are lowest of the
bottom budget airlines.

EasyJet, RyanAir, TuiFly all are famous for offering ridiculous prices like a
€20 Hamburg-Barcelona roundtrip and then trying to recoup those ticket losses
by charging through the nose for hand luggage, in-flight food, and by being
very pushy in selling their duty-free goods.

In my opinion, those airlines have always been operating at a loss while
burning through investor money, so I am not surprised the least that they are
still losing money.

~~~
arethuza
Ryanair has been pretty profitable?

[https://www.statista.com/statistics/756093/ryanair-net-
profi...](https://www.statista.com/statistics/756093/ryanair-net-profit/)

Edit: As does EasyJet

~~~
missedthecue
Ryanair is an amazing business. In their 25+ year history, they've never
issued debt or shares to raise capital. Thye've grown through cashflow alone.

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bluGill
No surprise. Anyone in a tourism industry is at risk. This is not a situation
that will last long term so any tourism company that can avoid bankruptcy will
come out okay in a few years, but airlines probably can't get there. The next
airline all the employees of current airlines will start is as good an
investments as airlines can be (airlines have historically been poor
investments...)

~~~
derefr
> This is not a situation that will last long term

Why, then, can’t the airlines just issue bonds, like governments do in this
situation? Large companies already do this to fulfill _short-term_ dips (see
[https://en.m.wikipedia.org/wiki/Commercial_paper);](https://en.m.wikipedia.org/wiki/Commercial_paper\);)
this would just be the longer-term version. As long as the dip will
predictably resolve, banks should be willing to secure the bonds.

~~~
bluGill
They have to pay them back - with what? Airlines are a low profit business -
they have high cash flow, but low profit overall. Even if they do get the
bonds now they will still go bankrupt over the next few years as someone else
without that debt comes along and undercuts their fares. This problem has
driven periodic airline bankruptcies over the past 40 years or so.
(deregulation sometime in the 1970s for the US)

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hannob
Warns? I'd say that's good news.

Let them die and only recreate a downsized aviation industry that's compatible
with limiting climate change, with the medium-term goal to switch it to
alternative fuels.

~~~
bluedevil2k
Alternative fuels for airplanes?? I’m curious what you propose to haul 200
people across the Atlantic. Batteries? Solar?

~~~
JumpCrisscross
> _Alternative fuels for airplanes?_

Synthetic jet fuel can be out of atmospheric carbon. (Chemically, it's jet
fuel. Just synthesized instead of being pumped out of the ground.) It's more
expensive than the out-of-the-ground stuff. But a lot of the price premium is
currently due to a lack of economies of scale.

Airlines could go carbon neutral within a few years. Replacing the power plant
is overkill.

~~~
seiferteric
This sounds like pure fantasy. A quick google search says the industry uses
~6.9*10^10 liters of jet fuel per year. Energy density of jet fuel is ~35
MJ/L. You would need at 100% efficient conversion ~76GW of continuous power to
produce that. Realistically probably like 10x that... Current installed solar
capacity is like 650GW world wide and it is not sunny all the time.

~~~
JumpCrisscross
> _Current installed solar capacity is like 650GW world wide_

Synthetic fuel is derived from hydrocarbons assembled from atmospheric C02. It
can be powered by anything. Installed solar is irrelevant.

~~~
seiferteric
Where does the energy come from? CO2 is already "burned" you can't make an
energetic hydrocarbon without providing energy, effectively
"unburning"/reducing it.

~~~
JumpCrisscross
> _Where does the energy come from?_

Anywhere. Nuclear. Wind. Waves. Initially, fossil fuels, because most energy
comes from fossil fuels.

~~~
seiferteric
If nuclear is on the table, then okay maybe but it would take decades and many
billions of $ to ramp up capacity. Solar was just an example, but all of the
renewables will have the same problems I mentioned, there is no way you are
going to get that scale of renewable capacity installed and running just for
the aviation industry any time soon. And as for fossil fuels... what? I don't
even understand, why would you use fossil fuels to extract CO2 out of the air,
that makes no sense...

~~~
JumpCrisscross
> _it would take decades and many billions of $ to ramp up capacity._

As would re-tooling (a) the economy to be less reliant on travel or (b) the
entire aviation fleet to be _e.g._ battery-electric. Change is expensive.
We're comparing costs, and when I've done that, synethetic fuel is the best
near-term, _i.e._ within 50 years, solution.

> _why would you use fossil fuels to extract CO2 out of the air_

Big plants (can) burn _much_ cleaner than jet engines. (Also, it's an interim
step.)

~~~
seiferteric
> > why would you use fossil fuels to extract CO2 out of the air

>Big plants (can) burn much cleaner than jet engines. (Also, it's an interim
step.)

Please show me how you extract more CO2 out of the air by burning fossil fuels
than you release.

------
andr
I admit this is just a shower thought, but airlines could really help in the
current situation by transporting sick people across the world (e.g. from
Italy to China) to even out hospital demand.

~~~
saas_sam
Do you think that might be hard to do given the content of the article you
commented on?

~~~
andr
They would certainly be paid for their services.

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JauntTrooper
Delta's stock has declined ~34% year-to-date through Friday. On Friday it was
$38.36. It hit a low of $35.18 as recently as June 2016 though.

It's an interesting data point on how much the stock market has declined so
far.

------
stretchwithme
I am ok with putting these airlines on life support until things get back to
normal, but ONLY if airlines are required to get insurance or build a rainy
day fund to handle similar future events. And only if shareholders and
bondholders are not bailed out.

There are risks in this business and lenders and shareholders should have
already taken that into account when they make their decisions. It's not the
job of government to handle these risks.

We need to keep this industry going but also start to be more responsible
about risk. And that will mean moderately higher ticket prices.

------
grecy
So airlines profited around $28 billion in 2019 [1], but none of them thought
to sock away money or do anything remotely forward looking or responsible in
case of a downturn.

On a global scale we're seeing the results of living irresponsibly -
individuals that have been spending all their earnings without putting
anything away for a rainy day, and corporations too.

Of course, the government is going to bail out the enormous companies and
leave the people to suffer through.

[1] [https://www.cnbc.com/2019/06/02/airline-industry-cuts-
profit...](https://www.cnbc.com/2019/06/02/airline-industry-cuts-profit-
outlook-cargo-business-hurt-by-trade-war.html)

~~~
oarabbus_
Well, hate it or not but they're an absolutely vital industry in the modern
day. It would be better for the world to bailout the airline industries, than
to not have airlines.

~~~
josephorjoe
You can save the industry without bailing out the stock holders and bond
holders, as those are three different things.

So, what is important?

1\. Maintaining a functional airline industry

2\. Making sure the bondholders get back 100% of their loans?

3\. Making sure shareholders don't lose their equity stake?

I would agree that #1 is important.

~~~
magduf
Well if airlines go bankrupt, that's a lot of assets that could be sold at
fire-sale prices, and an opportunity for other surviving airlines to jump in
and take over those planes and routes. Since China seems to have contained the
outbreak, and probably have the economic power to do it, maybe they'll buy up
a bunch of failed airlines...

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whatshisface
Setting aside for a moment the probability of extreme government intervention
to maintain the status quo, what would the free market do about this? Letting
the airlines fall apart because of a 6-month drop in sales seems like a
senseless destruction of value. Would investors band together to keep the
planes and pilots around until ticket sales came back? Is debt the answer?
Bankruptcy?

~~~
ken47
This is what bankruptcy is for.

I strongly recommend you read a primer on corporate finance, but the gist is
that creditors have first dibs on assets in a bankruptcy (and there may be
multiple tiers of creditors), and shareholders usually get wiped out.

The tradeoff is that when times are good, shareholders can gain far more than
creditors.

Now, if creditors really believe that the bad times will only be short-term,
the credit markets may refinance the debt, or allow the airlines to issue more
debt to cover the existing debt, allowing airlines to avoid bankruptcy,
assuming that good times return in a timely fashion, as predicted / hoped.

If creditors believe that the bad times will last for the long-term, they can
force bankruptcy, and then liquidate the assets in the hopes of recovering as
much of their original investment as possible. As mentioned before,
shareholders would get wiped out.

You said that this would be a "senseless destruction in value," but it's
really not that simple. As an example, perhaps the proceeds from the sale of
an airline's assets can be invested into promising treatments for COVID. Or
perhaps the creditors have debts of their own to repay, and by liquidating the
assets of an airline to cover their debts, they prevent a cascade of defaults
that could take out an outsize portion of the economy. So it's not actually
clear that the net effect on the economy would be a "senseless destruction in
value."

------
fxtentacle
FYI related Bloomberg article:
[https://www.bloomberg.com/news/articles/2020-03-16/u-s-
airli...](https://www.bloomberg.com/news/articles/2020-03-16/u-s-airlines-
spent-96-of-free-cash-flow-on-buybacks-chart)

------
dchyrdvh
Remember how somebody wanted to reduce air pollution, close factories and end
air travel? This is what it looks like.

------
ty_34235
[https://www.nytimes.com/2020/03/16/opinion/airlines-
bailout....](https://www.nytimes.com/2020/03/16/opinion/airlines-bailout.html)

------
toomuchtodo
Non-paywall: [https://www.marketwatch.com/story/global-airlines-face-
bankr...](https://www.marketwatch.com/story/global-airlines-face-bankruptcy-
by-may-if-governments-dont-intervene-warns-aviation-consultant-2020-03-16)

~~~
flatiron
[https://github.com/magnolia1234/bypass-paywalls-chrome-
clean](https://github.com/magnolia1234/bypass-paywalls-chrome-clean) works
great on ft.com

------
dreen
Capitalism is definitely ill-suited to a crisis like this. We have an enormous
production chain for anything we could possibly need and we could just use
that. We worked for this for generations, but we have no easy way to divert
this machinery to work differently for some time.

~~~
adventured
The way it would work is, Berkshire Hathaway with their $130 billion in cash
would purchase Delta outright for pennies on the dollar. Berkshire can endure
whatever reasonable length of time is required to get Delta back to spitting
off $6 billion per year in operating income.

Someone else with immense capital and assets would buy American Airlines
(maybe Steve Ballmer or Larry Ellison would lean into that; Ellison likes
airlines). Someone else would buy United, perhaps a major financial firm,
private equity.

Capitalism is not ill suited for this crisis. This is not the first time we've
seen this. We had Capitalism in 1860-1870 and 1918 as well. What people didn't
like about this process in the past, is the way it often consolidates economic
returns further, it generates huge winners and losers (in a way that seems to
most to be particularly predatory or unfair, as an emotional take), and
society often feels taken advantage of by people with vast well-stocked
fortunes.

Don't confuse whether it would work with whether people like it or not. It
works in fact and we've seen it multiple times in the past, we know exactly
what happens: there are big winners (those that were prepared to take
advantage) and big losers.

Many people took vast economic advantage of the Civil War, not least of all by
buying their way out of serving (hiring legal substitutes). Rockefeller for
example did well in commodities at this time, prior to the Standard Oil days.

~~~
claudeganon
> society often feels taken advantage of by people with vast well-stocked
> fortunes.

Given that the rich will survive this with a dent to their fortunes, while
everyone else is risking losing their house, jobs, health, and even lives,
this isn’t a feeling, but the reality.

If the outcome of this pandemic is Capitalism devolving into greater wealth
concentration and inequality, and the consequence of that concentration is
ever increasing precarity and material harm for everyone else, it is terribly
ill suited for this and all other crises.

