If we let the airlines go under, I wonder how much funding so called bullet trains and Hyperloop, etc would get in the USofA. We depend on Airlines way too much.

Edit: Maybe not "go under", but at least try and bail themselves out. We need to fund alternatives.

The planes won't vanish. The staff won't vanish. When demand resumes, new airlines will fly new routes, and those who made a fortune over the last 10 years from stock buybacks will be the ones who lost.

Clearly that won't happen. Income taxes will rise to pay for the stockholder protection act. Tax the productive to subsidize the wealthy.

UK government bailed out Rolls-Royce by nationalising it, turned it into a successful company, and then privatised it again 18 years later(there's a common argument made that perhaps it was nationalised for too long, but the effect was certainly positive).

I'm not sure the UK nationalizing car companies is a great example that we should be looking at - via British Leyland, they nationalized a lot of brands that never really recovered (Rover, Triumph, Austin, etc.).

> car companies

It wasn't about cars, it was about jet engines. The original Rolls-Royce produced both cars and airplane engines and was nationalize in 1971. The automobile part of the business was sold by the government two years later in 1973 as Rolls-Royce Motors while Rolls-Royce Limited produced jet engines and remained nationalized for 18 years.

Today Rolls-Royce is the second largest manufacturer of jet engines, after GE.

This is a bad faith question.

The real question is, “Why were the airlines so poorly equipped to handle a cataclysmic event when the last one was only 19 years ago?”

The answer is short term profitability.

And the follow up question is, “Why would ANYONE bail any for-profit company out to the benefit of the shareholders only, ever?”

How could an airline company possibly be equipped to handle this kind of situation?

If you want to be competitive on the market you need to lower costs and cut down on margins. You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"

> If you want to be competitive on the market you need to lower costs and cut down on margins.

Yes, exactly. There are certain businesses that should not be subject to market forces: essential services that have tiny margins.

> You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"

Then you get nationalized ¯\_(ツ)_/¯. If you want to be privatized again, make enough money to do buybacks.

Maybe you can... Berkshire Hathaway? Or even apple or google?

> You can't just have a big pile of money lying around in case...

Banks and corporations are requiring their employees and the government to do this for them, while simultaneously claiming to be profitable.

>You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"

That's what insurance is for.

If an airline can't afford to buy adequate insurance, then it isn't actually a profitable businesses.

If market pressures make it impossible for airlines to run operations in a financially responsible way, then that may illustrate the fact that markets don't always create the best outcomes.

Pandemic insurance? Lack of customers insurance? Do they sell that?

No, there was no insurance you can buy for this scenario that will cover $30, $50, $100 billion in accumulated losses if you're eg Delta Airlines.

There are no insurance companies that can afford that or that would back it, including Berkshire Hathaway (and they're among the only ones that could even attempt it).

If you tried it, you'd just take down the entire insurance industry again as they suddenly might have to eat $100 billion in losses across the segment in one year, paying out epic cash that nobody outside of Apple, Microsoft and Google have to pay out.

This is exactly the scenario where you should socialize losses across the giant government with the Fed's printing press and balance sheet, and simultaneously also ensure the government and its taxpayers get a fair deal (the airlines have to pay it back, and or taxpayers get the equity which can be sold off and receive dividends over time; all the US airlines were worth maybe $90 billion prior to the crash, producing like $18b in operating profit per year).

I don't know. If they don't, or if it's unaffordable, then that means that a lot of "private" businesses are actually implicitly backed by public money. Something to bear in mind the next time these companies complain about government interference, or libertarian types complain about paying taxes.

Most likely, the price of flights would be an order of magnitude greater if airlines weren't (through various direct and indirect means) publicly subsidised.

Maybe by not doing billions worth of stock buybacks over the last 10 years? They've literally been shut down for what... a month??

If AAL had saved their entire 2019 free cash flow (literally impossible), they would still be $6B short of their projected expenses. There is very little of their cost structure that declines when the planes are parked: Employees need paychecks. Lease payments are due on the engines and airframes. Rent needs to be paid on facilities. The fuel savings from not flying are offset by the need to mothball aircraft.

At least then we’d have to pay a much smaller bailout.

>If you want to be competitive on the market you need to lower costs and cut down on margins.

Or, maybe such a business model isn't (and shouldn't) be supported by the current rules of the free market. I would say "you can't just toss in billions on average every few years" and call that a legit business model for a for-profit private corporation.

> You can't just have a big pile of money lying around "in case all flight is halted for a few weeks/months"

You can. Keep it in some liquid investment vehicle so you can withdraw it at anytime. If you don’t want to do that, then go under and shut your business. Don’t ask tax payers to bail you out. I’m not sure why this notion of responsibility is so difficult.

by wiping out the existing shareholders and clawing back incentives to senior execs. you can do this through bankruptcy, an fdic-like asset reallocation (without consolidation into larger corps), or something else.

then the remaining market participants will figure out how to better account for such risks, which can no longer be considered rare (if they ever should have been).

Or, legislation could be used to ensure everyone has to have that big pile of money / mitigation strategies present, so that they won't get cut out by competitive pressure.

(And then the hard trick is ensuring the next folks in office won't dismantle that legislation to make some cash on the side.)

Yeah everyone seems to ignore this fact.

Tyler Cowen made an interesting point on a recent Econtalk episode that no passenger wants the airlines' stockholders wiped out. If you wipe out the stockholders, it skews the incentives of the executives against safety, and in favor of profits. The reason is that the primary (financial) incentive to run safe airline is to maintain reputation/goodwill (which is a form of equity), and if you wipe out all the equity, they have nothing to lose.

Wait, this is the industry that produced the 737 MAX, which skirted regulations and design flaws to avoid costly retrofits, redesigns and training, in order to maximize profits for shareholders.

This is the industry actively sending out planes for repair and refurb to sketchy offshore repair centers, in order to maximize profits for shareholders.

This is the industry that lobbies against more strict pilot fatigue rules, in order to maximize profits for shareholders.

This is the industry that spent the last decade investing heavily in stock buybacks instead of improving passenger experience, maintenance of their planes and employee well being, in order to maximize profits for their shareholders.

Seems maintaining shareholder profitability is its own safety issue.

It's not just for the benefit of the shareholders though. If it were I'd agree with you - but bailing out these companies is for the benefit of consumers, who would otherwise be without an airline industry for a while.

We should try to get the shareholders to pay for as much of it as possible though, whilst allowing the industry to stay solvent. This seems like some of the intention of making bailouts in the form of low-to-zero-interest loans (not sure if that's the form the bailout ended up taking).

Just gonna come right out & assert what kind of faith is backing the question eh?

GM and AIG are two examples from the last financial crisis. Both went back into private hands.

At a small profit to the US taxpayers, even.

We lost $11 billion according to this article.

https://www.reuters.com/article/us-autos-gm-treasury/u-s-gov...

We made a profit overall in the program that included GM/AIG's bailouts.

https://www.nytimes.com/2014/12/20/business/us-signals-end-o...

> In all, through TARP and other efforts, taxpayers injected $426.35 billion into banks and auto companies. The sale of stock and interest payments brought in $441.7 billion.

If you made a 3.5% profit (total, not per annum) on your incredibly risky investments between early 2009 and 2014, that's a fail.

You're only counting the dollar return. As a social institution of government, you'd want to price in the upside of not having the US auto manufacturing industry implode, with vast unemployment, lost manufacturing that would never return, and GM itself collapsing along with its jobs. It's considerably beyond your figures.

Alternative, nationalize it? Now that's a real disaster, having the US Government in the auto manufacturing business.

Regardless it's extremely low on risk in fact. That's partially magic printed fun dollars paid for via the Fed's obese balance sheet.

And that's exactly where the latest monster stimulus is going to come from. We most certainly are not paying down any of that debt, it only rolls one direction for the past ~18 years. We'll plop trillions more onto the Federal debt, push interest debt yields lower over time to compensate, and wake up tomorrow to a bright sunny day like it never happened (rinse and repeat until some day, 20 or 30 years into the future, when we can't keep doing it).

I'm not saying the government made a bad decision, but they should have rigged the deal more in favour of the people instead of the company if things succeeded.

Getting a 3.5% return over that time period didn't account for the risk that they took. They should have ended up at least doubling their money at the cost of the shareholders/equityholders that remained.

You're pretty confused if you think "the company" won if the taxpayer didn't. In the GM case, "the company" was owned by shareholders who lost 100% of their equity. The bondholders lost a lot, too.

For you or I, yes.

We aren’t big enough to put “saved the economy” in the pros column.

I’m not sure that saved the economy. If GM failed, someone else can and would take their previous share of the market. In the short term there’s pain for GM employees, suppliers, etc. but in the long term, corporate america realizes their losses won’t be socialized.

It blows my mind this country of anti socialism whose media was comparing my native country (Denmark) to Venezuela is so much against the common man but when it comes to the wealthy elites, it’s like your poor people have been taught to voluntarily empty out their pockets.

Socialism == bad somehow until it’s time to bail out corporate America, and even then, your people are against nationalizing these companies. So what lesson do their corporate boards learn? Nothing other than the American population whose already been robbed will foot the bill.

The GM bailout was, in essence, a partial and temporary nationalization. The losses weren't socialized; again, the US taxpayer made a small profit off the rescue program.

I'm all for a critique of the American attitude that "socialism" is automatically bad, but TARP etc. isn't a great example of that attitude.

Didn’t the US Government get stock in GM when they bailed it out in 2008? They ended up breaking even as the claim goes

Doesn't Norway own the majority of their oil company?

This is why I suggest operating the companies via a democratically-elected board. If the management sucks, vote them out.