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Comment by mrep | Hacker News Reader

Yahoo finance says their market cap is 4 billion [0] and yet they are getting a bailout worth 2.5 times their market cap. That's crazy.

[0]: https://finance.yahoo.com/quote/lha.de/

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They are trading at a really small fraction of their book value, currently 0.37[1]. In addition, their book value is being weighed down by debt.

I don't know why people fixate on market cap in cases like this.

[1] https://finance.yahoo.com/quote/LHA.DE/key-statistics?p=LHA....

Because it, in ideal terms, is how much it costs to buy the company outright?

Are we sure that the "market cap:book value ratio" is not an artifact of a) the stock price being marked down by the market, while b) their (e.g.) planes have not been explicitly revalued in light of the lower demand?

That's probably why the board doesn't shrug and vote to liquidate assets and pay shareholders more than their shares are worth.

I think Matt Levine has pointed out before that the amount of money it would take to keep US airlines going was likely to be more than their pre-Covid market cap. It's a big reason why the idea that they should just have saved up enough money to not need bailouts instead of paying out to shareholders is a non-starter; the value of the airlines to shareholders is less than the amount it would cost, because air travel is so cheap and low margin. In some very real sense, the profits from not saving up have already been socialized - everyone who travels by air or buys goods shipped that way has benefited from it - and so there's no alternative to socializing the losses too if we want airlines to exist after this.

Socializing the losses...I like that turn of phrase :-)

That phrase (the full form of which is "privatising the profits and socialising the losses") is often used in criticisms of bailouts of failing companies. This practice even has a name: lemon socialism.[1]

1. https://en.wikipedia.org/wiki/Lemon_socialism

Got a link to Levine's post?

https://www.bloomberg.com/opinion/articles/2020-03-17/the-go...

Could be even crazier:

Air France / KLM has a 2B cap; they are getting bailouts to the tune of 2B-4B (dutch gov., amount to be determined) + 7B (french gov.)

Also no the first time the government is bailing them out

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