The Airlines Need a Bailout they Probably Don't Deserve

This past half decade has been an amazing ride if you're an airline. They had record profits and record passenger loads. Then, about three weeks ago, they all hit a brick wall. With the airlines now reeling, they are asking the U.S. government for a $50 billion bailout. They don't deserve it. But they do need it.

Why do I say they don't deserve it? Let's look at the business actions these greedy SOBs (I mean that lovingly) have taken. 

In the past decade , the four major U.S. air carriers have spent $39 billion dollars buying back their own stock.  Companies use free cash flow to buy back shares. Free cash flow is the money you have left after you pay your bills. Unless you're American Airlines, which actually had negative free cash flow because it bought back so much stock that it lost money doing so. Stock buybacks are basically financial manipulation. They reduce the number of outstanding shares so share prices rise, even though the company is technically worth no more the day after it does a stock buyback than the day before.

This benefits shareholders (a lot!) and usually CEOs, whose bonuses are  tied to stock price growth. But it does nothing to improve a company’s financial condition.  In theory, the company can re-sell the shares if demand for their stock stays strong, and get the cash back. Note the “if”!

Despite a history of downturns and airline bankruptcies, it’s clear now saving for a rainy day wasn't actually in airlines’ business plan. They somehow expected blue skies forever. And, who wants to buy their shares now? So, instant cash crunch.

You might have expected customer service to have dramatically improved during the good times. But, alas, the party was paid for by customer inconvenience as the airlines added additional fees for bags and trip changes - even snacks - took capacity out of the marketplace causing planes to be stuffed with people, and sometimes even beat up (literally) their own customers (see United). With the exception of Delta, which had recently started to restore  the customer experience somewhat, no one really cared how the customer feels. Hey, it was working for them. But how embarassing to have to ask the people you nickled and dimed for peanuts to bail you out. And by people I mean taxpayers.

So this takes us to why we have to give them $50 billion – a sum which is decidedly not peanuts.

The airlines employ some three-quarters of a million people. They contribute billions to the U.S. economy. And the transportation system they provide is second to none.

They're not to big to fail. They're too much a necessity to fail.