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Comment by t0mas88 | Hacker News Reader

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.

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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.

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.

> 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

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

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.

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.

? 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?

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