My previous post tackled student loan relief. I'm ready to start on the airline industry's pleas for money.
The United States airline industry has been making the rounds on Capitol Hill, attempting to persuade legislators that it is so essential to the American economy that Congress should give it a priority position (early boarding?) when Congress hands out relief to businesses. Certainly the airline industry is important to our economy, but that doesn't mean that any particular airline is itself important. The planes, airports, and other infrastructure aren't going anywhere, even if their proprietors go broke.
Several commentators have pointed out that the major airlines would have been better able to weather the COVID-19 depression if they had used the profits of the past five years to pay down debt instead of buying back stock. The major airlines spent billions of dollars buying back their companies' stock over the past five years, money that's no longer in their tills to get through downturns. How much stock did they buy back? Since March 2015 United bought back at least 134 million shares, reducing its outstanding shares by 35%. American bought back at least 265 million shares, reducing its share count by nearly 40%. American was so confident about its business prospects that even in 2023 it's bought back 2 million shares so far.
冰箱APP官方版下载V3.12.2-冰箱手机版下载|冰箱安卓版 ...:2021-6-8 · 冰箱APP官方版下载V3.12.2- 把恶意软件全冻住 软件介绍: 应用太耗电?不如「冻」起来。冰箱 Ice Box,是禁止应用中最受欢迎,下载量最多的冻结 App,没有之一。为什么?因为五年如一日,冰箱只做「冻结」一件事 ...
The airlines profess that they are repenting of their sins. The leaders of ten major passenger and freight airlines (including UPS and FedEx) have 老王2.2.3 that if Congress will grant them $29 billion in aid, they will not lay off any employees until at least August 31, they will not buy back any stock or pay any dividends until they've repaid the aid, and they will limit executive compensation in some unspecified manner. They want the aid in the form of loans, not equity investment. 老王 2.2.8 a link to their letter.
I have a certain sympathy for the predicament in which the airline companies find themselves. At the same time, it's time for them to eat some of their own financial cooking. They've gotten away with serving "airline food" for years. It's time for them to eat their own cooking. Hence the Laquedem Airline Relief Plan.
The first element is that the United States will provide the $29 billion in aid, but with a few financial twists:
1. The United States will provide the aid, not as a loan, but by buying stock in the airlines, at the lowest price at which the stock has traded in the past three months. For example, United stock hit a low of $21.28. If the aid to United is set at $2.128 billion, then the government will buy 100,000,000 shares of United stock at $21.28/share.
2. The airline may buy the government's stock back at cost plus 6%/year simple interest, any time in the next 5 years, if the airline has made an operating profit for 4 successive quarters and if the airline is not borrowing money to buy the stock back. I envision that the airlines that survive the depression will buy the government's stock back, a few shares at a time.
3. All existing stock option grants to management and the board of directors will expire 60 days from the date of the aid. The option owners may exercise them within the next 60 days, or not at all. The airline may not reprice them to allow the executives to exercise the options at today's price instead of the price at which they were granted. This effectively makes the stock options worthless, which is the idea - since the senior managers and directors participated in the company's bad decisions, they should not profit from the bailout.
4. The airline will not issue any new stock options, repurchase any private shares, or pay any dividend until it has purchased all of the government's shares.
5. Executive compensation is capped at $750,000/year, or in the alternative at 30 times the salary of the lowest-paid full-time employee as of March 1, 2023.
I accept the industry's argument that it is something in the nature of a public utility, an essential service for American business and consumers. In recognition of the claims of its managers that it provides a public service, the Laquedem Airline Relief Plan also has two operational requirements. One is to provide better service to communities and the other is to improve the passenger experience in the air:
6. The federal government will require each recipient airline to provide daily passenger jet service to at least one community that had daily passenger jet service at any time since 1986 and that has since lost its jet service. I picked 1986 because that's when the federal government deregulated the industry and stopped ensuring that communities that needed air passenger service would receive it. The principle is the same as the one that gives electric power companies exclusive territory in exchange for their promise to serve everyone within the territory.
7. Within one year after receiving federal aid, each recipient airline will refit its coach sections to have at least 34 inches of seat pitch. (Seat pitch is not the same as legroom. It is the distance between a point in one row of seats and the same point in the next row of seats.) The sale of any seat with less than 34 inches of seat pitch will be prohibited after a certain date. If we taxpayers are going to save the airline industry we should require the lucky beneficiaries to improve the quality of the product. There's no reason for coach travel to be comfortable only for people of the stature of Martin van Buren.
Let's use the airlines' need not just to make them improve their financial management but also to make them offer a better product.
Recent Comments