FlyingUnderTheRadar

An interesting opinion piece in the WaPo (may be behind a paywall).

https://www.washingtonpost.com/opini...stay-business/

The author makes the case that the airlines should file Chapter 11 rather get a bailout as they have a temporary revenue problem.

Thoughts ? And please let keep this on topic so not to fly off to OMNI.

pinniped

I'm open to a bailout if it's attached to a thorough passenger bill of rights and other restrictions to compel airlines to at least behave quasi-ethically in the future. Hard protections against their corrupt leaders siphoning off the cash for themselves.

Otherwise, let 'em restructure.

They made their own bed here: they've been collecting years of outsized economic rents thanks to cartel-like behavior and cozy relationships with U.S. politicians and regulators. Instead of doing stock buybacks and showering executives with so much money, they could have been better-prepared for a demand shock.

Eastbay1K

It might (and perhaps should) be both. Bailout may be necessary for actual cash flow to keep current operating costs going. And these big 11s typically have DIP (Debtor in possession) financing arranged prior to filing, which may not be so available right now.

I didn't read the article. But a temporary revenue problem is fatal if you can't fill the jets with fuel, pay the crew to fly them, and most importantly, pay the mechanics to insure they take off and land as designed. The debt restructure then occurs as part of the Chapter 11. There could be a way to make one contingent on the other.

crabbing

no bailout funds for any airline that bought back any of its stock since 2008.

Often1

What makes anyone think that Chapter 11 is even a remote possibility for any of the legacies as well as WN & AS? Who in their right mind would put in place the financing required for a Plan to succeed without government guarantees and subsidies? That means Chapter 7, e.g. dissolution and no commercial aviation in the US for a few years until someone puts together the backing (presumably with government guarantees).

Either there is a direct bailout or a bunch of insolvency and restructuring folks make millions in fees and the same thing occurs at the other end. If anyone thinks this is all tied to the thread count in the hot towels or whatever else it is they don't like, they are missing the point.

rabilancia

There will be winners and losers no matter what path we take. Below is my blog post from last week (also, the link is HERE):

Winners and Losers

My thoughts on a government Coronavirus bailout.

With all that is going on right now, the above title phrase recently came to mind as the Federal government is jumping in to help those individuals and businesses that are losing a lot. The Federal government will not be able to help all the ultimate losers—those that will lose their lives—but by trying to help every individual and business, I fear that we all may become losers.

More below on the possible losers and winners.

Certainly, governments need to protect the public health, but to what degree? Social distancing is already causing short term economic damage. Will some of the many of the other actions of our governments result in permanent economic destruction? If so, it might be that the cure (the actions by our governments) will be worse than the Coronavirus disease.

So, what should be the real role of the Federal Government? Some thoughtful and interesting insight into this can be found in an editorial in Thursday’s Wall Street Journal by The WSJ Editorial Board titled, “Rethinking the Coronavirus Shutdown.” I strongly recommend that you read it fully.

One can argue that we already have unemployment insurance, food stamps and other forms of social welfare to assist individuals and families and that added expenditures may not be needed. Is the two trillion-dollar (nearly $6,000 per U.S. man, woman and child) action being considered really needed? Even if it is, how do we ever pay it back?

Additionally, and by way of example, what if United Airlines failed and ended in bankruptcy? Might not another better financed source buy the assets at a bargain basement price and resume operations? If so, the biggest losers would be the stockholders (who are supposed to assume risk)—not the employees. It would take time, but would that be so bad? Perhaps even a decline in the airline industry might accelerate a new and innovative Hyperloop-type transportation network.

The concept of government-funded bailouts is less than a hundred years old. Perhaps it is not the panacea we think. Many think the policies and actions of Hoover and Roosevelt that culminated in the “New Deal” contributed to the duration and depth of the Great Depression rather than stop it.

Even with the Conservative angst about becoming a Socialist country, that is what could be happening right now! Building on Darwin’s concept of “survival of the fittest,” Capitalism promotes “winners and losers” and in my opinion that’s just what we need right now. In my opinion, poor decisions of Corporations (thinking more about next quarters results rather than long term success and survival) should not be rewarded.

So, who might be the winners and losers?

1. With no business bailout the winners would be:
   1. Venture capitalists, investors and others that buy out the businesses and/or assets at reduced vales.
   2. Taxpayers not being put on the hook.
2. With no business bailout the losers would be:
   1. The stockholders and owners of the businesses.
   2. Employees getting reduced pay or unemployment with no benefits.
   3. Customers having prepaid for products/services (e.g., airline tickets).
   4. Elected officials dealing with the fallout.
3. With a business bailout the winners would be:
   1. The stockholders and owners of the businesses.
   2. Elected officials gaining from increased popular and able to get re-elected.
   3. Employees getting job continuity.
4. With a business bailout the losers would be:
   1. Taxpayers.
   2. Capitalism in our country/economy.

So, what should we be doing? What should we have done already? What should we be doing for the future? My suggestion (at which many will scoff) is all about community, church, friends, family and self-sufficiency. Remember the moral in Aesop’s fable of “The Ants and the Grasshopper“ (the full fable can be found HERE):
“If you want to succeed tomorrow, you have to start working today. Those who do not plan for the long term will not succeed in the long term.”
Yes, “We are all in this together,” but the ultimate key is personal financial independence. The article HERE that was just published today has some great tips to achieve that objective.

In conclusion, using the words (permanently etched in my brain) of Bob Chapman, an outplacement counselor that I met when I left Johns-Manville in 1985:
“The only security that you have is the security that you make for yourself.”
March 21, 2020
Loveland, Colorado