Reich: In the last 10 years, airlines spent 96% of cash flow to buy back shares | Hacker News Reader

Reich: In the last 10 years, airlines spent 96% of cash flow to buy back shares

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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...

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

>>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.

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.

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.

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.

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.

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

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

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.

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

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.

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.

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.

Air travel is subsidized by every country every year. For example airliners don't pay fuel taxes.

Generally any travel subsidy should be implemented as direct ticket subsidy, not as company subsidy or fuel subsidy. This way companies can go bankrupt and be acquired without government interventions. Only exception is to arrange uninterrupted service from bankrupted companies. Government ensure provide that with laws and regulations and emergency loans.

As US is more business capitalist than market capitalist system, there is tendency to make decisions where government helps companies directly instead of using market mechanisms to implement these things.

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