America's bailed-out airlines are not 'playing fair' with customers | Hacker News Reader

America's bailed-out airlines are not 'playing fair' with customers

finance.yahoo.com

136 pointsAlupis164 comments

If we give bail outs, we should get stock/control. End of story. All bailed out companies should be nationalized to some extent, depending on the value of their stock and how much the government buys.

A board/council of nationally elected representatives should manage whatever share of these companies the government owns.

It's time the citizens started getting a return on their tax dollars if they're being used for private investment.

> A board/council of nationally elected representatives should manage whatever share of these companies the government owns

This has succeeded practically zero times in the history of nationalisation. Transitioning a culture from private ownership to public is highly value destroying. And putting electeds in charge of companies goes about as one would expect in terms of venality and competence.

The better strategy is to have a board appointed by elected representatives with a finite term and mandate to return the assets to private ownership.

> Transitioning a culture from private ownership to public is highly value destroying

You know what else is value-destroying? Giving money to failed companies for free. Everyone's a capitalist until something bad happens, then they go running to Free Money Center to pick up their welfare check.

> And putting electeds in charge of companies goes about as one would expect in terms of venality and competence.

Yes, failing companies are a paragon of competence.

> You know what else is value-destroying? Giving money to failed companies for free.

We agree on this. I think companies should be allowed to fail. If we can’t afford that, their shareholders (and managements’ parachutes) should be wiped out, and the public should get economic upside. Bailouts should be a painful last resort.

But the public should not get control. Particularly not open-ended control by a board of politicians.

> Giving money to failed companies for free.

That's not what bailouts are.

These companies were shut down under extraordinary circumstances, and the economy also shut down in a very uneven way and for an indefinite time, with another potential shutdown to counter a winter resurgence. About half of Americans are still not under lockdown.

The picture to me is that the country does not consider itself as in the same boat.

These companies have made incredible profits for many years by nickel-and-diming customers, squeezing employees, and ignoring large-scale environmental costs, and then diverted the proceeds into the pockets of a small number of extremely wealthy people instead of using it to prepare for possible shocks.

If the people are going to bail them out, the people should get an ownership stake.

The airline industry is famously unprofitable; they make a bit of money for a few years, then lose all that money, and repeat the cycle. From what I understand, it has been this way for at least 40 years.

https://www.mcgill.ca/iasl/files/iasl/ASPL614-Five-Reasons-A...

Maybe that's telling us something.

Coincidentally, this occurred as the airline industry became deregulated.

It used to be that way. Recently airlines have been profitable enough to have no better idea what to do with their money than buying back stock for billions of dollars.

Why does anyone put their money into airlines then?

While I generally agree and would avoid airline investments personally, the airlines did just spend their profits for years on dividends and stock buybacks. If you don’t save for a rainy day, then it’s not too surprising you run out during bad times...

Dividends and buybacks don't change net profit, so it has no effect on the analysis that the industry as a whole is not very profitable over long time periods.

I think you misunderstood what our parent post meant. They are not questioning that airlines are not very profitable but that because of the low profit margins, the airlines should've saved those money and not spend it on stock buyback.

The outrage around stock buybacks is silly. It’s pretty much the same outcome as paying a dividend, just achieved in a slightly different way. The real problem is the current incentive structure. If your industry knows it will be bailed out, then the incentive is to not have enough cash on hand. Because anybody who saved for a rainy day will end up in a worse position than those who didn’t, and then just got a bailout. I’d say the solution is to either be more willing to let companies fail, or to structure bailouts in a way that represents a massive failure for shareholders, by significantly diluting their equity for instance.

You’re saying “don’t hate the player, hate the game”, but the thing is: we can hate both.

If you’re hating people for making completely rational decisions, then you’re just going to end up being pretty hateful.

My first point was that doing a share buyback is essentially the same thing as paying a dividend from a profit-allocation perspective. They’re both just different ways to use profits to return value to shareholders. The outrage over using that particular instrument is mostly just based on ignorance.

The outrage over these companies deciding to return that value to shareholders, rather than using it to prepare for ups and downs (in a notoriously unstable industry) is mostly justified. However it is entirely misplaced. It’s not just that they can win by doing the wrong thing, but due to the nature of historical bailouts, they risk massively losing out by doing the right thing.

There is no system of economics that can survive by rewarding failure. Failure must always be a possible outcome when taking a risk. These companies are simply taking advantage of a government provided incentive to fail. You have every right to get mad at them for making the rational decision, but that is just getting mad for the sake of getting mad.

In my comment I specifically cited dividends in addition to buybacks as I agree they both represent money that was returned to shareholders and could have been saved.

I don’t agree with your claim that the companies are incentivized to be insolvent so they get nice bailouts or they’ll get left behind. Looking at the auto industry in 2008, GM desperately needed a bailout and got $18 billion and the government ended up taking over the company, going bankrupt, and then the assets were sold off cheaply to make a new company. How is that advantageous for the shareholders (who lost everything!) compared to the other auto companies like Ford which did not need a bailout and were simply forced to take a smaller amount of money (~$5 billion) to boost their coffers and build investor confidence during the crisis. Ford never needed the cash (except arguably as a confidence buffer) and never went bankrupt so the shareholders made out better.

Obviously, they do. If the net profit of the company is zero, but all the actual profit is paid out to the shareholders, but all the losses are paid by the taxpayers / government, then the net profit to the shareholders is positive.

Great business plan though. I want in on it (after the crisis / losses)!

So if a business model struggles over the long term, should they or should they not be saving a rainy day fund? Are you saying it’s the tax payer’s responsibility? I’m really struggling to understand what point you’re trying to make.

We should probably look at why the business model is struggling over the long term. If nobody can make money in a business, that's a sign that too much has been invested in the sector.

if this is true then it was even more prudent for them to keep savings for the future and not do stock buyback.

>All bailed out companies should be nationalized to some extent

Is there an example of nationalized company that operates in free market and still manages to turn a profit for the investors(citizens).

I wouldn't make an investment in usps or amtrak as a citizen with profit motive as a tax payer.

Nationalised companies like USPS and local utilities turn a profit for the customers and externalities to promote the general welfare, as it should be.

Equinor (formerly Statoil) does fairly well for Norway.

The reason Norway does well with oil in a socialized manner is because their oil per capita is extreme, and the action of extracting and exporting oil from a well-known oil zone is a predictable industrial activity (prices are the primary wild card that you adapt to). It's among the highest per capita oil production in the world. That is not a scenario that replicates to our incompetent Congress managing airlines for a couple hundred million people, and such that the airline finances are a rounding error for the American people (annual checks for maybe $20 per adult), while we shovel more complexity and bloat on the Congressional plate (when they're not doing their job well as it is; do not give them anything else to manage that isn't absolutely necessary). The better way is to implement payback / return requirements for any bailout.

There is a good reason why Norway doesn't lead the world in very many things industrially, a reason why there are not plentiful other examples out of Norway of this model working.

Yes but not many because Chicago School Economics says you immediately privatize them in that case.

This line of thinking is the worst sort of ideological nonsense: the tax payers are bailing out a failed company with their own money, but because that bailout is administered by the government, which is, a priori, hopelessly inefficient, we dare not ask for anything in return lest the government really screw things up?

In case you didn't notice, these companies are already failed, and we're bailing them out. You're not "investing in them with a profit motive", you are forcibly having your tax dollars transferred to them. It's ridiculous that we would do so without any upside on the recovery. This is corporate welfare plain and simple. The really shocking thing is how our corporate oligarchs in American have turned "nationalize" into such a dirty word that regular people reflexively dismiss it as if it were Stalinist communism.

Its not a 'line of thinking' , it was an interpretation of parent comment 'getting a return on their tax dollars' in terms of pure monetary profits. Because thats the usual interpretation of ROI when someone buys a stake in a private company. You are ranting about something irrelevant, if thats the case, what does this have to do with stalin.

Maybe gp meant different, i don't know.

Serious question: do we have historical comparisons, can we refer to instances where nationalizing in the wake of a bailout led to positive results?

The one comparable I can think of in the US is Amtrak, which is functional although not exactly wildly successful.

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

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"

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.)

> 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?

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.

> 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.

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).

>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.

Yeah everyone seems to ignore this fact.

> 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.

>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.

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?

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.

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.

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

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.

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.

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

Bailouts for government-mandated shutdowns in crises are different than saving the banks for screwing up while trying to make more money.

People were flying less and cancelling flights far before the govt mandated lockdowns

But it was exogenous to the airlines, unlike the financial crisis, which was caused by malinvestment (by the banks themselves,) among other things.

The airline companies are the major spreaders of c19. While unintentional, this is a fact as is their ability to have put in some safeguards to slow down prevention like forcing sick people to wear masks and gloves (and ideally to fly on separate planes when possible) and disinfecting their planes after each flight. In this case, they directly caused a huge part of this crisis, much more so than in 2008. Also, airlines that have done stock buybacks should never be bailed out. They knowingly put themselves into a poor situation that should bankrupt them. In all of these cases, the airlines themselves are culpable and don't deserve any bailouts.

Well when you put it like that, WE that is to say the public are really directly responsible for the spread of the virus, by travelling when sick.

People are not responsible, the government who could've mandated such measures aren't responsible but the airlines are?

The government is definitely responsible. They fucked up testing. They fucked up contact tracing. They fucked up stocking for supplies. They fucked up handling travelers and quarantining them. They are still lying to people about the effectiveness of masks. They called it a hoax and pretended it wasn't happening. In fact, I can't think of a single thing the US government didn't fuck up. Most other governments were not much better. But I understand you want to blame the people, most of whom were asymptomatic, for spreading a disease they didn't know about that, at least in the US, was called a hoax, that the Chinese arrested people for talking about. Yes, it's their fault not the fault of the government that is supposed to prepare and handle such issues. Absurd.

And yes, the airlines played their part in it too, not disinfecting, not requiring masks, not caring a single bit about the safety of their passengers. Now they want a bailout because they couldn't manage their cash properly and decided to increase their stock price with stock buybacks instead of saving cash for a rainy day like this one. Absurd.

The airlines also invested poorly this time around though. They spent all their money on dividends and buybacks instead of saving for a downtown. American Airlines, which was the worst balance sheet, famously declared they were doing so well that the airline industry wouldn’t hit a catastrophe again!

“American Airlines has been rather irresponsible with its capital allocation in recent years. As shown in the tables above, it spent the highest proportion of its operating cash flow (52%) on dividends and buybacks, despite also spending more on capex than any of its peers.”

“American paid for most of this capex by issuing debt and entering sale-leaseback transactions. Meanwhile, it returned a little more than half of its operating cash flow to shareholders over this period, mainly through buybacks.”

https://www.fool.com/investing/2020/03/25/american-airlines-...

This article tries to make the point that not all airlines were equally bad but let’s face it American was the first one to need a bailout and they definitely squandered their financial position.

Let's say that AA didn't do any buybacks - instead they saved up all of the money that they would have spent on buy backs in the last few years. Would that have been enough to survive this pandemic?

Yes, likely. In 2015 and 2016 alone they paid $8.346 billion in buybacks and they seem to pay roughly a $0.40 dividend every year. Either way it would have allowed them to borrow less money at much better terms. Instead they are totally insolvent immediately and people have a more negative view of bailing them out because they appear irresponsible.

Airlines could have limited the spread.

Cheap air travel facilitated the global spread of the virus, they're not exactly innocent bystanders.

Cheap car travel facilitated the global spread of the virus. They're not exactly innocent bystanders.

Globalization facilitated the global spread of the virus, anyone with an international supply chain is not exactly innocent bystanders.

Social activity facilitated the global spread of the virus. Meetup.com is not exactly an innocent bystander.

etc...

Not sure what you're trying to say here. The point is that airlines were directly profiting by staying operational while the virus was already spreading. Had they been more proactive in curbing international travel then they would also have been able to resume business sooner.

Cars are not commercial entities that profit from spreading the virus. Rideshare and taxi services would be a different story, but even then they do so in a much more localized manner. Similarly if meetup didn't shut down its services soon enough the yes it did facilitate the spread for profit.

Economic globalization (movement of goods) on the other hand can work without moving people around as much.

All true statements.

The same criticisms can be applied to any businesses within these industries initially looking to be given billions in monetary grants without equity in return.

Small, dense living quarters facilitated it too!

Living quarters facilitate local spread.

Trains and cars facilitate national spread.

Planes and ships facilitate global spread.

Each of these has adjutant consequences of increasing severity. With planes and ships imparting the most severe consequences. Difference between planes and ships being that ships have medical staff, and you can quarantine them in port if necessary. Which we did mostly. (Of course, we probably should have done the same with airliners but hindsight is always 20/20).

This is the point everyone is missing. These guys literally make their money facilitating the global spread of the virus. They want to externalize all of the negative impacts of their business model.

OK. Fine.

But now we get a cut. You don't just externalize all the costs for dealing with the virus off onto us and then also have us pay to ensure your profits don't take a dip to boot. That would be the most insane deal American taxpayers could ever make.

Of course we should get a fair cut of the airlines dependent on the size and structure of the bailout. Anyone saying otherwise has just not thought the whole thing through.

Any private investor would demand the same.

a short-term oversight is warranted to get a company reorganized (happens in bankruptcies, for example), but long-term oversight can be detrimental to the best interests of citizens by keeping companies overly constrained from feeling and responding to market conditions.

and as others have noted, the return to citizens of such companies goes beyond its profits, so it's wise not to get to focused just on distributing those profits.

beyond that, let's make sure the shareholders and executives feel the pain of their decisions, so they can adjust for risk in the future. let shareholders take a serious haircut (you can cram them down by creating a large pool of new, unallocated stock) and for execs, take back all incentives beyond a reasonable salary for the past 5 years. you can take that reclaimed incentive and form forward-going incentives the execs can work for again.

At the very least, demand planes give passengers 1-2 more inches to every seat.

I wholeheartedly agree with this sentiment but I don't trust "elected representatives" to fairly represent my interests.

I want voting shares issued directly to me in an amount equal to my financial contribution (tax dollars / currency devaluation) towards their bailout.

In practice this is both hard to do (denominator issue) and leaves control in the hands of a small number.

The latter problem is also the argument against index funds (which I’m in favor if, but I appreciate the argument)

> ...leaves control in the hands of a small number.

Yes but it would still provide a considerably larger number of controllers (and with more diverse interests) than our current system.

> In practice this is both hard to do (denominator issue) ...

Excellent point here. It would be incredibly difficult.

Here's a thought though ...

Warning! I'm about to talk about cryptocurrency. Everyone might want to put on their futurism hats and keep their downvoting finger at bay, at least until I finish.

This problem wouldn't be very hard at all to solve in a world where the bailout currency has similar properties to blockchain based cryptocurrencies. Company shares could be issued as an "airdropped" token to everyone holding the currency at the block height during which the bailout is agreed upon. Those tokens could be used directly to vote on shareholder matters and in a way that is fully fair and transparent.

Yes I know. We are still many decades (and maybe centuries) out from a world in which cryptocurrency actually works how it's meant to. One day though...it's gonna be glorious.

Alright, I'm done. Downvote away.

I didn't really follow the blockchain thing - but now I'm curious - is blockchain (as tech) essentially money with built-in metadata? The whole 'proof-of-work' thing seemed a bit potlatch to me, but building publicly-accessable metadata into money seems like an interesting (although possibly scary) idea.

> I don't trust "elected representatives"

> want voting shares issued directly to me

Um... what are you going to do with your voting shares if not vote for elected representatives (the board, the CEO) that you'll have to trust to represent your interests?!

I think the idea is, at least there's one less level of indirection if the voting shares are issued directly to taxpayers.

> It's time the citizens started getting a return on their tax dollars if they're being used for private investment.

US citizens have already seen massive return on their 2008 bailout. These bailouts aren't free money, they're just loans that get paid back, with interest.

While I think the widespread negative reaction to bailouts is generally uninformed, the interest rates on bank bailouts was ridiculously low. And from what I understand, banks spent it in self-serving ways like stock buybacks and fat executive bonuses. I mean, why wouldn’t they. Without oversight, their priority is to shareholders.

It's overall $100b profit over $700b investment: https://projects.propublica.org/bailout/ and that doesn't account for the positive effect it had on overall economy by reassuring everyone. I'd say it's not so low at all. And if you lend someone money and then he returns it back with interest, does it matter what he did with it?

Why not just make it a loan?

The pandemic is not their fault, but it is their fault for not being prepared for something like it. It’s even listed as a risk factor in investor disclosures, so it’s not totally unforeseen. An electrical fire can burn your house down through no fault of your own, and that’s why you have homeowner’s insurance. How about keeping cash in reserves instead of doing huge stock buybacks the last 10 years? How about having a plan to wind things down and “hibernate” until the business can be spun back up again? No sympathy for them. No bailout. Let them fold, let them sell the planes so new management can manage them better.

Keeping large cash on hand for highly rare black swan events is a pretty inefficient allocation of capital. If all companies kept enough cash to not earn revenue for months and pay all expenses for a once in a hundred year event, then a significant portion of money in all the U.S. economy would just sit as cash and not be allocated to investment, hiring, etc. Just a counter argument.

This is true in theory. But in practice that revenue/profit often is allocated inefficiently anyway in the form of excessive exec compensation and stock buyback programs when valuations are high. Such as when your stock is trading at a high multiple. So the company is trading cash (which has a book value) for stock (which also has a book value but is probably overvalued) which juices the stock price in the short term. But stock assets vs cash are far more volatile to shock and thus provides less operating flexibility for big companies.

Imagine if you had that substantial cash reserve. This would be an opportune time to buy back shares on the open market after taking care of operating expenses.

One reason cash reserves don't often exist is "activist" investors and private equity who calculate (book value - market cap) as their potential upside from buying undervalued shares and stripping the cash assets before dumping the remains.

Anyway it's an complicated mix. I'd like there to be more emphasis on sustainable valuation growth from some adminstration and the SEC, but I don't know enough to suggest solutions to improve governance.

Maybe there could be some form of insurance.

Holding cash does not mean that it isn't allocated to investment. The airlines wouldn't be putting it under their mattress. They would be depositing it with a financial institution that would then be able to use the increased reserves to provide more capital to various actors, ie: investment.

But if a rare, global event like this happens and companies' emergency funds are mostly investments, isn't everyone going to try to liquidate their investments, crashing prices to a level where those investments aren't worth enough to keep them funded through the event?

If everything stopped, that would be an issue, but in reality there is still a ton of economic activity happening. As far a big businesses go, there are a handful of industries that are being impacted by this pandemic and if they were slowly drawing down on cash reserves over the next 6 months or so that probably isn't terribly harmful.

Also, this is why Central Banks exist.

The airlines have given billions back to their shareholders over the last ten years. They should now be approaching their existing shareholders for cash (rights issue) rather than approaching the government. The current share price of these companies is only being held up due to the expectation of free money from the government.

As others have said, they are privatising the profits but socialising the losses.

Except some of them spent that money not on investments or hiring but on stock buy backs. So maybe that was a bad use of capital?

Yes, that is why we share the risk with this handy concept called insurance.

I don't think it's correct to label this a black swam event. Pandemics are known to occur repeatedly, we had lesser ones in the 20 years and major international organizations were planning for them. The whole world were looking at china and with a seeing did nothing, including the airlines. Well, not everyone, just most. Some countries did shut down travel to and from china immediately and instated screening.

Had airlines shown the same foresight as those countries they could have shut down service to china as a "supportive measure" for the containment and enjoyed continuing profits in the rest of the world. They didn't.

Perhaps this is a matter of biases and misaligned incentives. In europe airlines were even flying empty just to retain their airport slots. But biases and incentives just mean you're very much aware of the black swans in front of you, you're just ignoring them willfully.

Relabeling these things as black swan events does a disfavor to everyone because they can just throw up their arms and say it was higher force instead of reflecting on the deeper structural issues instead of just working on specifically pandemic-related ones.

> a pretty inefficient allocation of capital

Why? If it would help with scenarios like this, what's the argument for it being "inefficient"? Should we only think of the happy path on our books?

The reality is that these costs are offset to the customer, in the name of increased profits. I wonder how different pricing would be for airlines (and other businesses) if they didn't rely on revenue to bail them out of market fluctuations like this, and smaller ones they're sure to experience during the year.

The economy lately is like a Formula 1 engine that is designed for acceleration and short 15,000 RPM bursts of insane speed but only lasts for a few months of use.

Yes, the bailout should've required all flights scheduled during shelter-in-place to be refunded. Millions of consumer dollars tied up in airline credits is a net drag on economic stimulus.

If you were flying to europe they should be reimbursing per EU261. So far its been hit or miss actually getting the refunds with the people I’ve helped.

Its amazing how when the contract of carriage is in the customer’s favor somehow it no longer applies.

Despite not having any information on American Airline's website, I was able to get my money for a cancelled flight last year from Europe to the US (due to technical problems on the plane) by just doing the contact us form and putting in all the info. But of course, they didn't have any of this info listed on their website in a way that told me I needed to do that. The check was mailed on time, and I was actually pretty surprised.

Definitely try to get your money under the EU regulations! It's worth the time.

In normal times you should also get 600EUR in additional compensation although they fight hard against that. Obviously this doesn’t apply here.

I don't understand why we can't let them go bankrupt. Presumably at least a couple of the airlines could raise money by selling more stock or getting acquired by somebody like Berkshire. The rest would go through chapter 11 and come out of it being owned by somebody else. We could use the 2 trillion to support the employees.

What am I missing?

What you're missing is that both political parties in the states are beholden to capital interests, and so the reason "we" can't let them go bankrupt is it would work against those interests. This isn't a conspiracy theory, there don't even need to be conspirators for it to work this way. With very few exceptions you are only capable of getting elected if you believe in the supremacy of the needs of capital. The only thing that can really stand against this is a strong organized worker's movement, which has been systematically dismantled over the past 70 years.

We (the Tax payers) did earn billions bailing out the banks.

https://money.usnews.com/investing/articles/2017-01-19/finan...

We should still have seen banksters going to jail over their clearly crooked and irresponsible behavior.

That article does not conclusively show the taxpayer benefited from the bailout. All it shows is that the stock price went up. If the money is then used to subsidize airlines, telecom companies, etc. and ultimately used for stock buybacks, exec bonuses, etc. then the taxpayer is never seeing any of that money.

Serious question: does anyone actually expect the government (at least the current administration, of the US) to do what's right for the little guy?

As much as I'd love to pile on to this question, HN isn't a place for general political arguments, and this isn't a productive discussion for this site.

“HN isn't a place for general political arguments”

I wish we’d stop lying to ourselves about this.

"we" aren't lying about it to ourselves. It's enforced from the top down because VCs (such as the benefactors of this site) strongly prefer that their founders ignore culture and society to focus 100% on business. The lack of politics on HN is not some kind of community consensus.

Or perhaps because political arguments online are 99.9999% ineffective at changing anything, and 99.9999% effective at causing discord.

I assume someone, somewhere was once swayed by a random stranger to change their mind, but it doesn't happen often enough to outweigh the costs.

HN has plenty of political, cultural, and social threads. I'm surprised you haven't noticed them. See https://news.ycombinator.com/item?id=22714705 and https://news.ycombinator.com/item?id=17014869 for more explanation.

Political topics take over everything if you let them, so we have to moderate HN to prevent it from becoming all-politics-all-flamewar-all-the-time. Do you think we should just let it burn?

Nobody's trying to "enforce" anyone to "focus 100% on business". I do worry whether users' addictions to sites like this keep them from doing better things.

Yeah that rule is extremely stupid. Please do what you can to make the mods and admins realize that this rule should be removed. Politics is fascinating. HN is absolutely a good forum for it and it already is basically unenforced.

What rule are you referring to?

Not to post political stuff on HN

There's no such rule. I've written about this here:

https://news.ycombinator.com/item?id=21607844

and in lots of previous places:

https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...

If anyone has a question that I haven't addressed in there, let me know and I'll be happy to answer.

The guideline for comments I was leaning on to try to cut short what seemed like inevitable political ugliness:

> Please don't use Hacker News for political or ideological battle. That destroys the curiosity this site exists for.

For sure, but curious conversation on political topics is possible, and is not battle. It depends on whether one is posting thoughtfully or just trying to smite enemies.

That's the zone that we hope HN threads will inhabit when addressing politicized topics. Of course it's unstable and frequently deteriorates, hence all the moderation comments we end up having to post. But I don't know of a better alternative. As I explained at the links mentioned upthread, we can't ban all politics and we can't just let such threads run raw either.

Lucky for you, this crisis is going to last until the next administration (which might be the same as this one, depending on election results).

So far we've got $1200 checks going to all the little guys and $500 to their little children.

Which hardly seems like much. Maybe if you are unemployed, but if you are earning $75,000 a year how exactly does this help? There is not much to spend it on now anyway.

Hard problem. They are working with < 12 percent load factors when 60% s break even is reality. I expect a lot of adjustments this week.

The airline industry needs to be resized as well as bailed out.

Business travel will be permanently impacted by the shift to digital communications that is being forced upon business now.

Leisure travel will not come back until there is a Covid-19 vaccine, which is 12 to 18 months at least. Even then, higher ticket prices due to the lack of the more profitable business travelers, combined with a lack of consumer expendable income, will curtail demand for another year or two.

Privatize the profits, Socialize the losses, that's the American Dream.

They often result in solid financial returns for the government holder of equity.

The parent post was talking about the current practice of bailouts.

The government took equity stakes during the 2008 bailouts, it was widely regarded as a successful program among economists. The government got repaid and jobs were saved.

The government got shafted by vastly below market returns. Economists are looking at the big picture but tend to ignore people picking your pockets as insignificant. Loss aversion means people actually care about these things, it’s just the simplified economic models that are ignoring them.

The government wasn't looking to maximize their return, if they were they wouldn't have included such huge protections for GM union workers. I don't think return maximization in a micro sense was the right approach anyways. The government got its pound of flesh through the increased tax revenue it generated by not having the economy implode.

> The government wasn’t looking to maximize their return

Someone was, the simple word you looking for is corruption. The end goal of a corrupt state might be to build a road, but the specific cash flow ending up in well connected hands has absolutely nothing to do with the stated goal.

Is that actually true? TARP cost $426 billion in 2008 and when the assets were finally sold off in 2014, they summed $442 billion. So that's a 3.7% return during a time when the s&p 500 more than doubled in value.

Do you have some examples where the government made these returns?

Right but they maintained a whole tax producing economic center including (probably) corporate taxes and income tax on hundreds of thousands of wages from the companies themselves and their suppliers. Breaking even on a bailout is pretty phenomenal given the broader implications.

That assumes they had no leverage and no other options. Raising the rates by say 4% and companies would still have taken the money and the economy would have reacted in the same way.

You're missing the opportunity cost of doing twice as well?

You're assuming that the s&p would have done well had the government not enacted TARP. It's pretty agreed upon by economists that the bailouts of the GFC saved us from financial collapse.

The TARP is still projected to net a $121bn profit for the taxpayer. Only a portion of loans have been returned to the government currently.

https://projects.propublica.org/bailout/

Citation needed. AFAIK they sometimes result in a profit (as with GM in 2008) which unsurprisingly gets attention. But the long history of postwar nationalization’s in Europe and the US are not promising by this metric.

There are other reasons, some good, for doing so. Amtrak, for example, might better have been formed as a nationally operated part of the transit network rather than as a quasi-private-sector corporation that is neither fish nor fowl and suffers for it. Municipal utilities often work quite well at least here in Northern California, though at the national level I only know of the TVA and the western dam systems.

Awesome, every poor person I know owns tons of those.

What do you mean by "privatize the profits" here? Are you ignoring taxation?

One way to view the government's role here is that it shifts around externalities to achieve efficiency. You can put cap-and-trade restrictions to absorb negative externalize in high-pollution industries and redistribute that to consumer/producer markets that suffer from the pollution.

You can probably apply a similar piece of reasoning across time. Government can tax industries during booms and then redistribute that during busts.

> What do you mean by "privatize the profits" here? Are you ignoring taxation?

Are you (excuse my french) fucking kidding me?

Source: https://itep.org/notadime/ (dollars in millions)

     Company (U.S.)   ~ Income ~ Federal Tax ~ Effective Tax Rate
     Alaska Air Group ~ $576   ~ $-5         ~ -1%
     Delta Air Lines  ~ $5,073 ~ $-187       ~ -4%
     JetBlue Airways  ~ $219   ~ $-60        ~ -27%

And from this source: https://itep.org/covid-19-is-no-excuse-for-airline-industry-...

The most taxes paid was by Southwest, at 21.4% ... Which is a 60% of my personal tax! When can I get personal tax rates like that???

>What do you mean by "privatize the profits" here?

CEO's we getting their fat bonuses (tied to share prices) for years, inflating said prices with buybacks, and now, when shit hit the fan, they are dumping half-bankrupt companies to the public?

Airlines are a grey government agency. If they had to pay the true cost of things like air traffic control, FAA administration and safety regulation, or health costs due to pollution, to say nothing of the non-the-first-time-fat cash payment they just got on top of the huge fact that they are paying little to negative tax rates (all effectively government subsidies of their operations) then not a single airline would be in operation today. The industry exists at the price it exists only with heavy support from the government.

The cost of an airline ticket has fallen by around 50% since the 1980s; clearly the industry can exist and still pay for the services/infrastructure it consumes.

What you say is reasonable in theory, but grossly ignores the actual history. E.g., the 2017 tax cut was an enormous giveway to corporations and the rich: https://qz.com/1769421/trumps-tax-cuts-and-jobs-act-shows-po...

And a lot of that money is being borrowed, so it's even worse than it seems at first blush. Not only are the rich getting richer, but we'll all have to pay for it eventually. So recent history is the government doing the opposite: they were giving away money during the boom, making it harder to do countercyclical interventions in a crisis. And this from the supposedly fiscal conservative party.

Maybe so, but please don't post unsubstantive comments (like mechanical tropes) to HN. They lead to predictable and therefore tedious and therefore off-topic, generic discussion.

We detached this subthread from https://news.ycombinator.com/item?id=22712653.

The government is failing badly at every level. That's more clear now than ever. Serious question: Why would you want to give them more to fail at?

>The government is failing badly at every level.

Just the executive branch, which was elected by a certain segment of our society.

Thankfully (hopefully) it only lasts 4 years, and not 20.

Just the executive branch? You should look into the corporate manipulation of the legislative branch- buying elections with PACs, gerrymandering, voter suppression, the filibuster, extreme partisanship on every topic except the protection of wealthy donors...

Senators and Congressmen selling off their stock after private briefings about COVID-19 is a pretty good example of how the legislative branch is no better. They probably could have weathered the storm pretty well ... those of us in the middle class have taken a material hit to our retirement prospects.

There's no assurance at this point it'll be improved the next 4 years, and who knows what's after that. It could be even worse for all we know. So it's not wise to increase what they might be in charge of.

Anyway, let's be real, it goes into the state and city levels too. NYC health leaders encouraged people to go to parades in Feb, in defiance of Coronavirus. Their mayor was encouraging people to go to bars and theaters into March. March!

Example from March 2nd: "Since I’m encouraging New Yorkers to go on with your lives + get out on the town despite Coronavirus, I thought I would offer some suggestions."

https://twitter.com/BilldeBlasio/status/1234648718714036229

Do they not bear any responsibility for that? And for not generally ensuring their health system could handle a surge? We knew of this specific problem back in January. We knew pandemics would be a problem generally. It's not exactly a surprise.

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