
Why Do the Airlines Need a Bailout? - neaden
https://slate.com/business/2020/03/airlines-bailout-coronavirus.html
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neaden
Step 1: Make money for 10 years. Step 2: Spend 96% of that money on stock
buybacks. Step 3: Encounter difficulty Step 4: Ask for $50 Billion in grants
and loans so you don't go broke.

Imagine if you or I tried to pull something like this.

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salawat
Note that the stock buybacks were favored because they were a more tax
favorable way of returning money to investors than via dividends as I
understand it; and if the corporation did build up a rainy day fund,
shareholders may have justifiably been upset at the lack of dividend.

In short, it may be more complicated than it necessarily seems at first blush;
then again, what I just typed is a cargo cult parrot of the current business
zeitgeist.

I will admit that I too ascribe to maintaining a rainy day fund as part of
responsible operational stewardship given I see the purpose of a corporation
to be providing a societal solution first, and generating/disseminating profit
second, therefore I favor strategies that result in an operation that can keep
chugging along even if something unexpected hits vs an absolute min/max on
profit.

Then again, I don't have many successful individual business ventures to my
name, so... yeah. Take it with a grain of salt. I can definitely tell you a
handful of ways _not_ to do it though!

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chewz
Stock buybucks and dividends are OK. But when company needs money it is up to
shareholders, bondholders, credit markets to re-capitalize the company (if
they think it makes business sense).

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linuxftw
This is exactly why low to zero interest rates are always a terrible idea. It
incentivizes reckless borrowing, doing dumb things with the money like buy
backs, then when money dries up, we have a major problem. All entirely
predictable. All these companies should go bankrupt. No more 0% rates.

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LatteLazy
As someone who does keep cash on hand, I find it frustrating when those who
don't are bailed out. That said, hasn't almost every bailout the government
has give returned a big profit? So (grants aside) isn't this just the lender
of last resort seizing a good business opportunity? And as tax payers, that's
good for all of us right?

If we decline, then there will be big disruption (bad for us as consumers),
supply will contract unnecessarily driving up prices (bad for both consumers
and taxpayers) and some private lender will make a killing selectively bailing
out or investing. Sound better?

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thorwasdfasdf
Since this is becoming a recurring theme, of "too big to fail". I think, from
now on, any company that is "too big to fail", should have to pay a "too big
to fail" insurance tax to the government (perhaps a certain percentage of
their revenue). they can't just keep getting free bail outs, without paying
the insurance premium. If I opt to not get drivers insurance and then crash
into someone, i can't just ask for insurance coverage after the fact.

~~~
LatteLazy
Isn't that exactly what the bailout is? We lend them 100bn, they pay back
120bn, that's 20bn in to-big-to-fail insurance premiums...

~~~
thorwasdfasdf
well, the premium they're paying is less than the market rate, otherwise the
market would have given it to them. Hence, if they're going to get a
subsidized loan, they should have to pay into that, along with everyone else
that is elligble for it

~~~
LatteLazy
There is no market rate for this because it can only be provided by government
and because these events are basically unique.

The key here should be for the insurer (government) to recover a little more
than their expenses in the medium term. That's a correctly priced insurance
policy. That's exactly what tarp did. It's actually very impressive that the
managers of the program were able to price the policy so correctly if you
think about it...

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loons2
Let them sell off that stock they bought back and/or fail. New airlines would
emerge... when/if the demand ever picks back up to what it was end of '19.

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foxyv
If the government invests that much money they should receive shares in turn.
Then distribute those shares to taxpayers. Same for any subsidy or bailout.
Otherwise you are just giving money to existing shareholders who benefitted
from stock buybacks that led to the problem.

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robocat
What percentage of shareholders are retirement funds - owned by retired people
that saved rather than spent?

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foxyv
Does it really matter? What is the difference between propping up someone's
retirement fund and giving them the money directly?

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chrisgd
I think we should bail then out but with just one unitranche facility that
they can draw upon to pay wages and debt, but we accrue interest in the form
of equity. The more they borrow, the more equity we end up owning effectively
wiping out existing equity holders and most likely bond holders. We can then
sell shares once it is operating smoothly again. It might make management
think harder before they award bonuses or spend lavishly.

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gdubs
"This country has socialism for the rich, and rugged individualism for the
poor."

-Dr. Martin Luther King, Jr, 1968

Do we need to rescue the airlines? I'm gonna guess that's pretty essential to
the economic recovery at large. But it's hard to ignore the fact that in this
country, when poor people make mistakes [or, in this case are the victims of
circumstance], they typically eat those mistakes. Medical bankruptcies, unable
to cover a $500 emergency, etc.

So, ok, let's rescue all the industries that juiced their share prices over
saving for a rainy day – but, for the love of god, can we _please_ also bail
out 'main street' this time around?

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planetzero
" But it's hard to ignore the fact that in this country, when poor people make
mistakes [or, in this case are the victims of circumstance], they typically
eat those mistakes. Medical bankruptcies, unable to cover a $500 emergency,
etc"

This may be the case. But would you rather have thousands of people without
jobs in the airline industry and the many other jobs that will be lost as a
result of the bankrupt airlines?

Bailing out these industries out is in essence allowing many people to keep
their job.

~~~
aabeshou
one option is to bail them out but _with strings attached_. Demand concessions
that are good for labor and for the consumer public in exchange for the
bailout. Don't just let them put all savings into pockets of executives and
shareholders (while promoting "ration and save/pull yourself by bootstraps"
ideology to the poor, of course) then run crying to the taxpayers because
they're too big to fail.

~~~
neaden
Or to just nationalize them, many other countries have government owned
airlines.

~~~
rafiki6
best time to do something like this too

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JoeDaDude
An insider's view (note: not mine): [https://aviationweek.com/air-
transport/airlines-lessors/opin...](https://aviationweek.com/air-
transport/airlines-lessors/opinion-covid-19-end-may-most-world-airlines-will-
be-bankrupt)

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8bitsrule
First, they'll have to cut down on flights over time to help with climate. I
haven't heard one idea out of the airlines over that problem. This would be a
good time to demand that they explain how they're going to contribute to a
solution ... and not have until 2050.

Second, they have been THE major contributor to the spread of this pandemic.
No apparent recognition of that. This would be a good time for them to start
planning how THEY - not government agencies - are going to be protect us the
next time.

So we should just wait until we hear their plans. Boeing had to wait for a
year - why not them?

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thewileyone
Having worked at an airline in the past 3 years, here's my opinion:

1\. Margins are extremely thin, so for many airlines break even for a flight
is 80-90% of tickets sold.

2\. Regulations such as requiring airlines to fly their routes or risk losing
the slot, ends up in empty flight (pure loss) just so they don't lose the
slot.

3\. Airlines are high cashflow businesses which are then highly leveraged with
loans and long contracts. Disruption to cashflow screws up everything.

Honestly 2.5 years with the airline and I have no idea how we stayed
operating.

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scoot_718
Why do we need airlines?

