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Comment by SpicyLemonZest | Hacker News Reader

What amount of cash reserves would have allowed them to survive their business becoming illegal?

If you aren't massively over-leveraged, your survival prospects are much higher under any circumstances. If the airlines had serviced their debt instead of accumulating debt while rewarding shareholders, recovery would be a lot easier.

Indulging in debt is the American way. Particularly when you can rely on taxpayer financed government bailouts to smooth out the bumps.

Buying back shares is, in some ways, paying off your debt. Whenever you need money, you can just create more shares and sell them back. The problem is that you lose some diversification benefits: when you need to sell more shares is often (though not always) correlated to a drop in your own stock price. Ideally though, you're inflating the balloon so to speak so you can deflate it when need be. Or you think that your stock is undervalued right now.

Except now the airlines need more money and no one is interested in buying those shares.

C level executives of these companies buyback stock to unlock stock performance bonuses early....they will borrow money to do it if interest rates are low and if they know they will get bailed out during bad times....

All this "we are doing it for shareholders" tripe is nonsense. Buying back stock at all time highs is the most idiotic thing a company can do because it says the business has no better use for said money, which imo is one of the dumbest conclusions a company can come to if growth is the goal (is your R&D department so useless that giving the money back to shareholders is the best allocation choice? Silly)....I'm including companies with a huge war chest like Apple, they are not an exception to this truth.

Many companies (run by idiots) have concluded that financial engineering is more useful than R&D, these badly managed companies should be left right in front of the "market firing squad" when the market turns against them inevitably... No bailouts.

> Buying back shares is, in some ways, paying off your debt.

So you buy back shares when they are at the 52 week high and sell more shares when they are at the 52 week low... that's brilliant.

Share buybacks make sense for companies with strong balance sheets and little/ no debt load. For example: Apple. They make zero sense for companies with weak balance sheets and tons of debts (e.g. Most of the airlines).

Take current expenses and multiply by 6, and that's a good start. Standard personal finance advice is for individuals to have 3-6 months worth of expenses on hand for an emergency. Banks frequently require 3-6 months of reserves for commercial real estate loans. Why shouldn't that rule apply to large corporations?

>Why shouldn't that rule apply to large corporations?

Because it makes little sense to compare a corporation's finances to your own, especially in a low margin industry, and it would completely stifle growth.

Then they don’t get to come whining to me for bailouts.

Apparently they do. It's not nearly as simple as you'd like it to be.

It literally is that simple. My company had ~6 months worth of expenses stashed away in cash, cash equivalents, and other fairly liquid vehicles, and our net profit was ~4% on over a billion in revenue.

Edit: Why should I, as an individual, be held to a higher standard than a group of individuals who have come together in the name of profit (most of which goes to those at the top) and have limited liability in case of failure?

The stock they bought back is a liquid vehicle. Seeing as your company, whatever that may be, had sixth months put away, I imagine you actually mean "invested" and very little of it was cash. Your operating expenses are extremely high and earnings low.

As to why it's a different standard, it's different for the same reason baseball doesn't use the same rules as water polo. Both sports, but very different.

I'm not here trying to defend poor management, but it's hard to take your "maintain a massive emergency cash fund" idea seriously.

3-6 months worth of operating expenses is in no way a “massive emergency cash fund.” Around half of that 6 months worth was in cash or cash equivalents (I don’t remember the exact numbers offhand), not shares or other investments.

You’re actually proving my point when you say our expenses are high relative to net profits. If we can do it, and still be growing at an adequate pace (we grew earnings at, IIRC, 8% last year), what can’t other companies? Before, you claimed it would stifle growth We have way more software engineers on staff than financial engineers. I find it hard to believe we can do this and other companies can’t. You haven’t given me any reason why they can’t, either.

And, BTW, if repurchased stock is so liquid, why are these airlines crying now? It’s because either they didn’t adequately insure against a systemic risk to their business, or they canceled the shares.

Hard to pin down exact figure, but a quarter worth of their normal turnover could probably go a long way. Given that their fleet is grounded, airports rents are suspended and there are no fuel expenses.

Moreover, now is actually a good time to buy fuel and stockpile it (if they have the facilities), or use derivatives to take advantage of the situation if not. I am aware that airlines do hedge their fuel costs, but, that requires cash, which they apparently don't have right now.

About 50 billion which is what American was asking for. Considering they have posted between $3-15 billion [0] in quarterly profits over the past 10 years, it seems reasonable that they could have saved a rainy day fund _and_ bought back stocks.

[0] https://www.macrotrends.net/stocks/charts/AAL/american-airli...

You want them to save half their money? That makes no sense

The current reality would require them to have those reserves as opposed to being bailed out, so by all meaningful definitions, it does, in fact, make sense.

No, I don't think it does. Just because an event of very small probability happens does not mean it is rational to waste half your cash preparing for it. What determines the right actions in regards to mitigating risk has little to do with the realized events; instead, it's better to look at the probability of said event. Not saying they shouldn't have saved some cash for a pandemic, but the fact that it's happened isn't an argument for them to have done so.

That data looks wildly inaccurate and does not pass a sanity check at all. Take a look at anything from AAL's investor relations' page and it does not reconcile to anything like 3-15bn quarterly profit ever.

https://americanairlines.gcs-web.com/sec-filings

Here's their latest quarterly filing:

https://americanairlines.gcs-web.com/node/37821/html

You are completely misreading those charts. The interval is 1Y, not one quarter.

To review the profits that AAL posted you should look at the "Net Income" charts[1], and not the "Gross Margin" charts that you linked to.

[1] https://www.macrotrends.net/stocks/charts/AAL/american-airli...

? surely 12 billion dollars that american spent would have extended their runway a day or two.

Who made it illegal exactly? And do you think there are no flights atm?

It's not precisely illegal. I'm assuming that was a rhetorical device. There are some flight restrictions in place, though. Reduction in flights is also causing a larger than normal number of "ghost flights," which are a pure cost incurred to move people and aircraft around. [0]

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[0]: https://www.cnn.com/travel/article/airport-slots-ghost-fligh...

The airlines have more accountants than airplanes. I trust they'd figure it out.

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