I’m not saying that we should just let these airlines collapse. Even though bankruptcies are not unknown in the airline business, having them collapse now would add even more instability to our economy and endanger even more jobs.
But what I am saying is that the terms of the bailout money that the airlines get from us should reflect the fact that a substantial part of their current financial problem is of their own making.
So I think it’s only fair for taxpayers to get a substantial piece of the upside in return for bailing out these companies. And in the process, bailing out their shareholders, who would be left with nothing if the companies failed.
Yes, this is the same point I made last week about a taxpayer bailout of Boeing.
But it’s a point that we should keep in mind every time we see companies line up at the bailout trough. If many of these companies hadn’t spent lots of money to buy back their own stock to prop up its price, they wouldn’t need anywhere near as much money as they need now.
That’s especially true of these four airlines. Almost seven out of every eight dollars the four airlines sent Wall Street from 2015 through 2019--$39.1 billion out of $44.7 billion — went for share buybacks. The rest went for dividends, according to my calculations based on the companies’ Securities & Exchange Commission filings.
The main reason companies buy back stock in the market, of course, is to support their share price. High stock prices not only make shareholders happy, but also increase top executives’ wealth by making their shareholdings and stock-purchase options more valuable.
In addition, in many cases higher share prices help trigger higher executive compensation because share price is one of the metrics that corporate boards often use to determine executives’ compensation packages.
Finally, the higher a company’s stock price, the lower the chances are of an “activist” shareholder taking control of the company and kicking out directors and top executives.
Of the four companies we’re looking at, United is the most striking example of putting every available penny into buy backs.
From 2014 through 2019, United spent a total of $8.57 billion for stock buybacks and paid no cash dividends. Southwest spent $8.53 for buybacks and $1.38 billion for dividends, for a total of $9.91 billion. American spent $11.895 billion for buybacks and $1.064 billion for dividends, for a total of $12.959 billion. Delta spent $10.08 billion for buybacks and $3.168 billion for dividends.
These numbers, which come from the companies’ SEC filings, total $39.076 billion for buybacks and $5.612 billion for dividends. This means the airlines sent a combined $44.688 billion to Wall Street, which is about 90 percent of the proposed $50 billion bailout fund for the whole airline industry.
That’s half again as much as the $5.67 billion that United was worth at Friday’s closing price. And it’s about 40 percent of United’s value before the covid-caused collapse of airplane travel trashed its stock price.
The reason that I’m harping on share buybacks is that in theory, money for them is supposed to consist of cash that’s surplus to the companies’ needs. But in the real world, companies frequently borrow money to help fund buybacks. That works great to prop up their stock prices — until one day, there’s a problem.
And today is that day. So yes, let’s keep these companies — and other bailout candidates — out of bankruptcy. But let’s make them pay taxpayers a handsome return on our loan and give us a big chunk of stock before they’re allowed to send another penny to Wall Street.