
Reich: In the last 10 years, airlines spent 96% of cash flow to buy back shares - onetimemanytime
https://twitter.com/RBReich/status/1241475421281157121
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nabla9
If you want to know why, I recommend always brilliant Matt Levines's article
"The Good Times for Airlines Are Over"
[https://www.bloomberg.com/opinion/articles/2020-03-17/the-
go...](https://www.bloomberg.com/opinion/articles/2020-03-17/the-good-times-
for-airlines-are-over)

As the article explains airlines taking money off the table is optimal
solution for them.

~~~
onetimemanytime
>> _At the start of 2014, American’s stock market capitalization was about
$13.3 billion. Shareholders got back $15 billion between then and now. 3 In
the aggregate, shareholders got about 113% of their money back over six years.
If their stock is now worth zero—it’s not, American’s market cap as of
yesterday’s close was about $6.8 billion—then that’s not an amazing return_

He's assuming that they sold the shares. If not, they may hold a lot more
shares in total, but all are now worth about half.

~~~
nabla9
He is not wrong. Investors balance their portfolio regularly irrespective to
dividends or buybacks. Corporate dividend/buyback decisions don't dictate how
much they own.

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Taniwha
Since they took the wealth that they should have been putting aside to weather
economic downturns and invested it in their own stock surely they can simply
sell all that stock to raise money rather than needing to be bailed out?

Of course they made a poor investment choice, they invested in a company that
wasn't prepared for what's happening now, so they'll lose money on their
investment.

("but our stock price will go down!")

Better than going to 0.

~~~
concerned_user
I am not an investor nor economist, I had a course on technical analysis of
stock markets so I have some understanding. To me it seems like a very strange
idea to put safety fund into your own stock. If things go bad your stock will
be dropping. Sane thing to do if you want to save that value is to buy
government bonds or other securities not your own stock.

~~~
nabla9
Buyback is alternative to dividend. It's a way to give money to shareholders.
Stocks bought are usually canceled.

In other words, those stocks bought don't show in the company balance sheet as
assets they own. They are gone, they are not investments.

~~~
Taniwha
But they could easily be reissued by the board - especially one faced with a
stock price of 0

~~~
nabla9
Re-offering makes sense only if the stocks are seen having upward trend or
someone sees value in the stock.

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onetimemanytime
I don't think we should let them collapse, just negotiate with them: Sign off
xx%-90% of the company to US taxpayers or no money.

~~~
jdc
Unfortunately representatives tend to get caught up in horse trading for
themselves.

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nostromo
Interesting that HN will generally regard rail travel as a public good that
should be subsidized, not during a crisis but every year, by tax payers.

Well, in America, air travel is our rail.

If you go hardline libertarian about this and let them fail, the federal debt
might be a bit smaller, at a time when our government can borrow for 0% — but
after the crisis your tickets will be much more expensive as competition will
have dropped back down to two major carriers that won’t compete on price.

~~~
nieve
I think a lot of people here would be content with leveling out the massive
subsidies. This isn't a situation where the airlines, aerospace companies, and
their supporting web of companies aren't getting plenty of direct subsidies,
loan guarantees, tax breaks, and so forth already. It sounds like you think
it's a zero sum game with the only important metric airline ticket prices?
Railways don't offer airline tickets so that formulation neatly does away with
them unless we support rail enough for it to grow to something competitive.

~~~
nostromo
Most Americans pay for Amtrak every year and never directly benefit from it.

Air travel has been extremely cheap for some time because of competition. Well
the competition is about to die and you will be left with one or two choices
for most routes. And those carriers will increase costs dramatically.

So the question is if you want to offer some small government assistance to
keep our infrastructure running, or if you want to double your cost of air
travel for the next decade.

