The right way to structure this is to issue $50B worth of stock to the government. The airlines can buy it back with future profits to prop up the price once things are back to normal, while keeping the company afloat and retain jobs now.

The shareholders would protest, and should be allowed a right of first refusal. Put in money at the same price per share to avoid dilution if you want to. Their alternative is bankruptcy, so they don't have much other options.

No. The right way is to issue 50B of stock back to the public. The shareholders who received 50B and are holding it in their personal emergency funds can buy it back, or new investors can. There's more than enough private capital available without requiring the government to step in.

The public currently wouldn't buy the stock due to bankruptcy risk. If the government commits to buying what's left at the same terms the public would start buying as well reducing the burden on taxpayers.

Historically this kind of deal has been profitable for governments in the cases that I know of (in banking), while at the same time keeping more jobs and thus reducing economic impact of unemployment.

Oh i have no doubt the government will make money from this. I was saying what i thought the right way to finance this is. You say the gov will make money -- certainly true. It would be much better for the airlines to issue to the public though so the public can make money

Delta and United were each able to raise over $2B in credit. They have plenty of airplanes and facilities to use as collateral. Coming out of 2019 United had about $29B equity (assets - liabilities).

They don't really need a bailout to stay in business. The grant money for employees is contingent upon them keeping open flight routes that they'd otherwise close. Sec. of Transportation wants low traffic (small) cities to have access to medical supplies and whatnot (at least that's what she says, of course she's pro-business as well).

Capital markets are open right now. There's a price but they are open.

If the public wouldn't buy airlines stock because of "bankruptcy risk" then why was Carnival Cruise Lines able to raise more than $6bn in debt and equity recently?

Because Saudi Arabia bought a lot of that equity. Not who I want being a majority (EDIT: s/majority/substantial) owner in my country's airlines if they need a bailout; have the US Treasury own them.

https://www.businessinsider.com/saudi-arabias-sovereign-weal...

That's incorrect. PIF's stake was as of 3/26 while CCL did the equity deal on 4/1. I don't know if they participated in that equity deal but they would have to disclose if they increased ownership. The equity deal was only $500mm vs $5.75bn in converts and 1st lien bonds. Non-insiders did not know PIF invested in the company when they raised this recent $ so it's not like that was some sort of anchor. Also, given their recent investments, PIF owning a significant stake in anything should make you run the other way.

I'll have to go through the disclosures before I speak more confidently about the recent equity activity in CCL, but PIF did very recently disclose they acquired 43.5 million shares, a 8.2% stake in CCL. This makes PIF their second-largest investor. This surely contributed in CCLs ability to do a rapid raise right after.

I corrected my terminology faux pax above.

I'm telling you as a market participant that PIF's stake was not known at the time.

Here's a link to CCL on EDGAR:

https://www.sec.gov/cgi-bin/browse-edgar?company=carnival+cr...

The filing date for the 13G was yesterday. Link to said 13G:

https://www.sec.gov/Archives/edgar/data/815097/0001011438200...

You're right, I stand corrected. Thanks for the links.

> There's more than enough private capital available without requiring the government to step in.

If that were true, the price wouldn't have tanked so much?

They haven't issued shares yet so we can't know

It's unlikely the market holds $50B in demand for airline stocks right now. Sending their shares to zero isn't going to help.

I've been loading up and I imagine many investors are.

American, Delta, Southwest, and United have about 60% of the US market. They have a combined market cap of about $45B.

The idea that the airlines could issue $50B in shares is a fantasy.

I believe the 50B is for keeping everyone employed. That is what is fantasy. Most people ought to be laid off in these times. That is what unemployment insurance is for.

Of course, that's not politically popular, which is why the government is becoming involved.

? The government is the public. Am i missing something?

NO the government is the government. A company issuing shares to the public means that any individual can choose to buy them or not. Issuing them to the government means the government buys them. The government is representative of the people but is not simply just the people in aggregate.

It's like your parents buying stock for you and promising it to you in your inheritance versus buying a stock yourself. Sure, you can say that you own the stock if your parents promise it to you(In the sense that you will benefit from it eventually), but you don't own the stock simply because mom and dad do. They can change their mind, or decide to give all the money to your awkward brother.

Thank you, it is endlessly frustrating that this debate is always framed as "extraordinarily generous no-strings-attached bailout" vs "allow them to perish in flames," when there is always the alternative of a "bail-in" which requires executives and shareholders to take some of the pain, secures a much more concrete and measurable benefit to taxpayers, and thus helps avoid worsening the moral hazard problem we are drowning in.

That's roughly how the GM bailout worked. 'The government initially had a 61% stake in GM when the company emerged from bankruptcy in 2009, leading critics of the bailout to dub it "Government Motors." It started to sell that stake with GM's November 2010 initial public offering. '

Why not loans? Pandemic is not the fault of the airlines, just like small businesses around the world, most airlines just need a short term loan to resolve liquidity issues while the pandemic blows over. Loans are safer investments than buying stocks.

As I understand it the issue here is cash flow; the assets the companies have on their books are still valuable, but there is a cash flow issue right now. Every normal company would approach various lenders to take out a loan - I'm not quite sure why airlines are being treated any differently, or why the government or public needs to receive stock as a make weight.

If their businesses are solid, sound businesses, major lenders will not have an issue with offering good terms on whatever it is that they need to bridge the gap.

Other than a firm understanding of what that gap is, am I missing something obvious which makes bank loans not the go to solution here?

> who the hell could have predicted the world was going to shut down like this in 2015-2019?

The people American Airlines employ to predict future risks to the business.

Their SEC filing:

> Our business, results of operations and financial condition have been and will continue to be affected by many changing economic and other conditions beyond our control, including, among others:

> • outbreaks of diseases that affect travel behavior

> In particular, an outbreak of a contagious disease such as the Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, avian flu, Zika virus or any other similar illness, if it were to become associated with air travel or persist for an extended period, could materially affect the airline industry and us by reducing revenues and adversely impacting our operations and passengers’ travel behavior.

https://americanairlines.gcs-web.com/node/37211/html#s1E0EED...

It's very predictable that we'll have major market downturns for various reasons every 10 or 20 years because of history. If you are 25 years old you've lived through 3. I'm older and I've lived through 5 or 6, depending on how you count.

They won't "go under". Force them into bankruptcy, someone buys them and assets out of bankruptcy. Management learns that there are huge ramifications for poor management decisions prioritizing investors short term wants vs business long term needs.

"It is good to kill an admiral from time to time to encourage the others." It is good to destroy incompetent, short-sighted management from time to time, to caution the others.

Funny enough - I thought you were serious and agreed with me - and just found out you were being facetious. ;)

Sounds good to me. I'll bet there's some Chinese airlines that would like to expand their operations and have the cash to do some buyouts.

A Chinese airline cannot run domestic routes in the US. You seem to know very little about travel regulations.

Well then maybe that law needs to be rescinded.

Not sure if you meant this sarcastically, but if that happens, fuck it. This is the world we made. To pretend we have free-market capitalism while propping up shitty business practices with tax-payer sponsored bailouts is not free-market capitalism. Institute laws about foreign governments buying up bankrupt assets or something. But for the love of god don't just bail them out.

This is the same as scolding a child hitting their sibling and then giving them a fucking cookie. Then when they keep hitting people, at least have the sense not to be confused why they don't learn.

After seeing how Boeing and American-run airlines operate, I'd have a lot more trust in Chinese-run airlines and airplanes than anything run by American managers.

> No business is going to hoard 50 billion dollars in an emergency fund for a pandemic that cuts 90% of revenue, that's just absurd.

Maybe a smart airline should. Because people have been issuing warnings about a possible pandemic for many years.

A business that operates as if it's always going to be sunshine and rainbows is not a properly run business.

> No business is going to hoard 50 billion dollars in an emergency fund for a pandemic that cuts 90% of revenue, that's just absurd.

Aren't there a number of companies that have been hoarding cash for some time? [1]

1. https://www.cnbc.com/2019/11/07/microsoft-apple-and-alphabet...

Indeed, I work at a company with no debt and significant cash reserves. I had not idea it was so rare until the past few weeks.

You might not expect that some particular disaster is going to happen, but you can expect that some setback is going to occur, eventually. The good times do not last forever. It's not like the principle of having a reserve for bad times is a new idea (see also: ant, grasshopper).

If our corporate overlords bet everything on short term gain, and left nothing for the tomorrow that they thought would never come, why should we have to fix their mistake?

Yeah, but most setbacks lead to a 10% drop in flights, not 99. This is quite material. A company that anticipated up to a 20% drop in flights and saved to last a year with that, will only be able to last a few months with a basically 100% drop in flights. That is exactly what we're seeing now.

You could always limit it to companies that can show the money which would have been used if there was a limited decline in business. Separate the ones who did indeed behave responsible and were caught by this extraordinary event from those who bought back stock without thinking about tomorrow.

Clearly all of them were prepared for some contingency given that they are still in business several months after a drastic decline in demand for flights.

I know everyone likes "the good ol' days" but this is a teachable moment. Sometimes you get the bear, sometimes the bear gets you.

No its not. No company should prepare for its business model to be made illegal. The best outcome for shareholders there is to return money to them before the business model becomes impossible and declare bankruptcy.

> No company should prepare for its business model to be made illegal.

Yes. When you have a business in an industry that is in the political or regulatory eye, you should prepare. This is historical prudence.

> this is a teachable moment > No its not.

I would treat it as such and that's the problem, isn't it? The model didn't become illegal, it became impractical for an extended duration of inactivity. This isn't an unexpected natural disaster, it's a rather regular event. Something something The Ant and The Grasshopper. Maybe another incarnation will show better judgement by holding more reserves and point backward.

The inability to consider history is a trend of the USA, politically and commercially now.

Financialization requires the money to be used "productively" instead of sitting in reserves waiting. Everyone wants a higher stock price and/or dividends instead of long term stability. I recently came across a saying that summed it up well:

"MBAs think companies make money. Companies make shoes."

When you abstract the details away again and again and again, eventually you forget that the details exist and matter.

> People make it sound like they were buying back their stock as they were cutting flights and laying off employees.

No. People make it sound like they were buying back their stock as they were not using that money to increase worker salaries and benefits. Nobody would complain about necessary bailouts if the organization shared profits with its laborers instead of lining executive pockets.

In addition to all the other issues that people have brought up, the most important thing to remember is that the airline business is extremely cyclical. They know that there are always bad times around the bend. Their total lack of preparation is what's so galling. The management at these companies is simply unfit when they so routinely ignore the history of their own industry.

I seem to recall that total profits for the (US) airline industry from 1960 to 2010 was $0 (dates may be incorrect, but the general timeframes are correct). It's all just bankruptcy, merger, restructuring, and repeat.

You should always be suspicious of claims by or about a company that they made no profit when they were able to throw billions at propping up their stock price. If it's true it's financial malpractice, but it's no more believable than the shenanigans of highly profitable megacorporations that somehow end up paying no federal taxes.

What I said was that total profits for 50 or 60 years, for all airline companies put together, were $0. But any one company, for a period of several years, certainly could be doing well enough to reasonably buy back stock. It doesn't have to be financial malpractice. (It may be, but my statement doesn't mean that it is.)

Sure they could've held it. Apple did it for a while. You could invest it and make even more, or invest a bit in not treating your passengers like f*cking cattle and constantly charging millions of fees, maybe?

Passengers are choosing to be treated like cattle, by aggressively bargain hunting for the lowest available sticker price.

You have lots of options to get better service - economy plus, priority boarding, buying food onboard that you no longer get by default. And of course upgrading to business class.

All these things cost more and you could either pay for it by default on every ticket like in the old days, or you can purchase them separately. Consumer demand has overwhelmingly indicated a preference for the latter. Sure the airlines could lower their margins and drive down prices on these things for customers slightly. We'd be in the exact same situation now though without any cash reserves so I don't see how that would have helped.

The $50bn in profits shows exactly exactly that they didn’t cut margins that much, or reduce fees.

Also the prices don’t go down when oil prices do.

why isn't stock buy back considered inside trading? Is the purchase somehow firewalled from the company?

If they fail what happens to the planes, the staff, the pilots, and anything else that makes the airline? Nothing.

The best thing we can do is let them and their bad debts die. We have private bailouts they're called acquisitions.

Who could have predicted in August of 2001 that a terrorist cell would hijack airplanes and use them as missiles resulting in a massive decrease in the number of passengers?

You really don't have to look too far in the history of the airline industry to see examples of black swan events.

Independent of the COVID-19 pandemic, I can think of at least two other scenarios that would destabilize the revenues of airlines:

(1) A catastrophic airplane crash that disrupts air travel and/or changes consumer sentiment towards airline safety. Consider that US aviation is in an extended safety streak and most Americans cannot quickly recall a time other than 9/11 when an airplane crash resulted in death.

(2) A change in the price of oil that drastically alters ticket prices. This is not likely given the current climate and the mitigation that airlines now undertake vis-à-vis oil futures, but a plausible scenario nonetheless.

Given that me, a random guy that knows fuck-all about airlines, can come up with 2 scenarios where revenues are disrupted without any foresight, it begs the question whether the airlines are acutely aware of their "too big too fail" status.

It seems their preference to enrich executives and shareholders all while hedging against any catastrophic events with a government bailout should be on par with 2008-era financial misconduct.

Prediction: Airlines will receive a bailout and face little repercussions for their poor planning.

> No business is going to hoard 50 billion dollars in an emergency fund for a pandemic that cuts 90% of revenue, that's just absurd.

That just isn't right, for a number of reasons.

First, the 50 billion applies to the entire industry, so the "emergency fund" of an individual company is going to be much smaller. Imagining an airline holding 1 billion in a buffer, rather than using it for stock buybacks, isn't that far-stretched.

Second, 90% loss of revenue isn't the problem, it's how long this revenue stays down that is the problem. The FAA closing the skies for a week should not be a problem, a month is going to be a huge problem, and a quarter might already be fatal.

Third, preparing for such scenarios is commonplace in the financial industry, for example. (I have a sibling comment regarding that). Banks are now expected to be resilient enough to survive another another 2008-like crisis on their own, without taxpayer-funded bailouts. And these expectations are not merely high-level, there are entire hordes of specialists, both in banks and with regulators, that do nothing else other than model various scenarios.

How about they invest that money in production instead of stock buybacks ?

Here's what Matt Stoller has to say about buybacks and bailouts in general:

Fundamentally, mergers, buybacks, and excessive executive compensation are about stripping out resiliency in return for cash, and the lobbying is the political machine to protect the ability to do that. So what to do? The answer is pretty simple. Stop hidden risk pooling.

Financialization and private equity is about loading up corporations with hidden risk. We cannot afford that anymore. So here are the conditions to put on large corporations who need cash from the government:

-No bailouts for shareholders. Shareholders took the risk and upside, they should get the downside too. A bailout means the stock value goes to zero.

-No more buybacks ever, and no more dividends for five years. It’s time to stop asset-stripping, and restore the cushion inside corporations so they can invest in production.

-Strict executive compensation limits. No more get rich quick schemes and golden parachutes. We need long-term leaders focused on building institutional strength.

-No more lobbying, as well as limit public relations spending. The Housing and Economic Recovery Act of 2008 killed the ability of Fannie Mae and Freddie Mac to lobby, and that killed their political power. By contrast, Wall Street got bailouts with no strings attached, so they largely wrote the Dodd-Frank bill. (I was there, I saw it). Don’t repeat this.

-No more mergers and acquisitions for five years. If you get bailouts, you have to run your business as a business, not as an acquisition target. I can imagine an exception if the business fails as a stand-alone, but exceptions need to be very narrow.

I agree that a lot of these arguments seem pretty naive and lack understanding about how markets and the economy work. Also there is nothing inherently wrong with stock buybacks at all I think. However, I think everyone would benefit by realizing that these "unpredictable" events are actually not that rare and we should be prepared for them. Companies should keep more cash for unpredictable scenarios. It didn't have to be a pandemic, it could have been war, volcanic eruptions, terrorism etc. Companies should not assume it will always be "good times". Also these types of events seem to trigger chain reactions that make leverage and financial tricks really risky, so keeping cash I think is good.

It doesn't help us much now, but I think there is a strong case for expecting them to build up a warchest. American, Delta, and United have all had bankruptcies before, so we know they're not invincible. 9/11 hit them hard in 2001, the Icelandic eruption hit them hard in 2010 .. Airlines are fragile, and I think it's time they started building their own safety nets.

That doesn't mean that this time we should let them sink, but perhaps there do need to be some strings attached. Airlines do just lurch from one crisis to the next, and we can't afford to lurch from one bailout to the next with them - else we may as well nationalise them.

Terrible things happen to people all the time that are difficult to predict. Yet the legal system holds them accountable for the contracts they are involved in.

This needs to be equally true with large corporations, otherwise contracts lose meaning.

> who the hell could have predicted the world was going to shut down like this in 2015-2019

Market downturns tend to happen at semi-regular intervals. It's been 12 years since the last one.

> People make it sound like they were buying back their stock as they were cutting flights and laying off employees.

No but airlines were absolutely cutting the quality of their services. They bought back stocks at the expense of passenger comfort. Anecdotally, from 2015-2019 each flight I took was less pleasant than the last. When I travelled in the summer of 2019 our flight did not have vomit bags. Guess what? Two passengers vomited on the approach. All over the seats. Speaking of the seats, they were so uncomfortable that I actually injured my back as a result of sitting in them.

> No business is going to hoard 50 billion dollars in an emergency fund for a pandemic that cuts 90% of revenue, that's just absurd.

It is absurd under the incentives that business operate under. It's also absurd that businesses can operate until the point of bankruptcy, stranding passengers like what happened when Thomas Cook went under last year. https://www.nytimes.com/2019/09/23/travel/thomas-cook-airlin...

> I really hate that this argument keeps popping up.

I think the reason this keeps coming up is because regular people are feeling extremely frustrated at the moment. Average people are told they should save for a rainy day. I did and now I have the privilege of spending down my rainy day fund while the airline industry expects a handout for not doing so.

> The reality of the situation is that these airlines employ a lot of people and enable even more commerce and economic activity through their operation. You can disagree with a bailout all you want, but if they go under, the economy most likely suffers by a lot more than $50B.

Perhaps some of the impact can be mitigated by taking a portion of $50B and putting it in the pockets of the employees who will lose wages instead?

No, if the airlines "go under" in bankruptcy, the assets, airplanes, and people remain-- with new leadership and investors. The dynamic, economic outcome is to let them fail and reorganize them.

The problem is all of the people making money on the stock market. The (somewhat shaky) justification for them making that money is that they are taking on risk. If they are not in fact taking risk, because their short-sighted investments are going to be bailed out by government, then we really need to start questioning why the private investors are the ones making the money in the good times, and not the government who is actually taking on the risk.

It keeps popping up because it's very likely a bad idea and should go back to being illegal (which it was until relatively recently) because it artificially pushes up prices, https://www.bloomberg.com/opinion/articles/2019-07-24/stock-....

I'm frankly amazed that you are really arguing that it is "absurd" for companies to be prepared for events of this magnitude. Many businesses absolutely prepare for them. This isn't a mile-wide asteroid, it's a pandemic. Also, $50B is not the amount an airline has to buffer to weather this, that's a ridiculous exaggeration.

Of all industries the airlines should have been acutely aware that they could be suddenly and without warning significantly effected by outside incidents and planned accordingly. This is an industry that has gone through this before following 9/11.