Airlines already violating the CARES act?

[SlumTodd_Millionaire]

The basic principal is to have 3-6 months of operations in savings

That isn’t and never has been a basic principle of a publicly traded company. That’s how you make yourself the target of hostile takeovers, actually. Most publicly traded companies aim to have about 15% of yearly expenses held in cash and cash equivalents. Airlines generally look for 20% because they’re more prone to economic impact risk, but you can’t carry much more without someone like Lorenzo coming along and buying you with your own cash.

 

[flynryan692]

That isn’t and never has been a basic principle of a publicly traded company. That’s how you make yourself the target of hostile takeovers, actually. Most publicly traded companies aim to have about 15% of yearly expenses held in cash and cash equivalents. Airlines generally look for 20% because they’re more prone to economic impact risk, but you can’t carry much more without someone like Lorenzo coming along and buying you with your own cash.

Fair enough, I'm no expert on this stuff but if you work out the math the figure is in the same ballpark, if you want to call it a ballpark.

AA has a daily operating expense of $70M, which means a month of expenses is $2.1B. A year is $25.2B, so 20% would be roughly $5B, while 3 months of expenses is $6.1B and 6 months is $12.6B. I don't know the significance of $1B to an airline the size of AA, but that's the difference between 20% of yearly expenses and 3 months of expenses. The original point still stands, they had at best very little when the fecal matter hit the fan.

 

[A1TAPE]

Speaking of Lorenzo here’s a question for you all. If Lorenzo was allowed to own another airline and he bought one of the big 3 or a smaller ULCC would he fly it into the ground like he did with Eastern?

 

[manniax]

Speaking of Lorenzo here’s a question for you all. If Lorenzo was allowed to own another airline and he bought one of the big 3 or a smaller ULCC would he fly it into the ground like he did with Eastern?

It's kind of a moot point. Lorenzo was effectively banned from the airline industry after Eastern went out of business. Also, he's almost 80 years old now.

 

[SlumTodd_Millionaire]

Fair enough, I'm no expert on this stuff but if you work out the math the figure is in the same ballpark, if you want to call it a ballpark.

AA has a daily operating expense of $70M, which means a month of expenses is $2.1B. A year is $25.2B, so 20% would be roughly $5B, while 3 months of expenses is $6.1B and 6 months is $12.6B. I don't know the significance of $1B to an airline the size of AA, but that's the difference between 20% of yearly expenses and 3 months of expenses. The original point still stands, they had at best very little when the fecal matter hit the fan.

Again, that’s by design. It’s how you prevent someone from buying your company by borrowing against your own cash.

Contrary to popular belief, airline execs actually do know more about the business of running an airline than pilots do.

 

[flynryan692]

Again, that’s by design. It’s how you prevent someone from buying your company by borrowing against your own cash.

Contrary to popular belief, airline execs actually do know more about the business of running an airline than pilots do.

I guess I am confused. What is by design? You said publicly traded companies aim to have about 15% of yearly expenses held in cash and cash equivalents, airlines look for 20%. So are you saying it is by design that they didn't have the 20% they were supposed to have?

 

[A1TAPE]

It's kind of a moot point. Lorenzo was effectively banned from the airline industry after Eastern went out of business. Also, he's almost 80 years old now.

Ok but for the sake of argument lets say hes not banned from the industry and instead of 80 hes 40. How would he deal with corona?

 

[SlumTodd_Millionaire]

I guess I am confused. What is by design? You said publicly traded companies aim to have about 15% of yearly expenses held in cash and cash equivalents, airlines look for 20%. So are you saying it is by design that they didn't have the 20% they were supposed to have?

Cash balances vary by quarter. If you look at American, for example, they were close to 20% mid-year 2019. They were down to about 10% by the end of the year. But that is indicative of an overall problem the airlines were having even before this pandemic that no one was really paying much attention to: operating margins have been steadily declining since 2015, as have cash balances. The airline industry still suffers from many of the same problems that it did pre-bankruptcy era. People are razzle-dazzled by billion dollar quarters because it sounds like a big number, but the reality is that American had a 3.5% net margin and a 6% operating margin last year. United wasn’t much better. Only Southwest really had an enviable business. Delta was doing much better than United and American, but even they were just barely clinging to 10% margin, which isn’t much breathing room in that highly cyclical business.

The airlines were poised for collapse at the first sign of economic trouble. The pandemic and shutdowns were just the trigger this time. Just like 9/11 was the trigger last time.

It’s a crappy business. It needs to be regulated. Until Congress does that, it will suffer a never-ending cycle of (semi)boom and boost. But the executives aren’t bad at what they do. They make the best of the crappy business they’re stuck managing.

 

[flynryan692]

I see now, thanks!

 

[Atlanta]

I ag

Cash balances vary by quarter. If you look at American, for example, they were close to 20% mid-year 2019. They were down to about 10% by the end of the year. But that is indicative of an overall problem the airlines were having even before this pandemic that no one was really paying much attention to: operating margins have been steadily declining since 2015, as have cash balances. The airline industry still suffers from many of the same problems that it did pre-bankruptcy era. People are razzle-dazzled by billion dollar quarters because it sounds like a big number, but the reality is that American had a 3.5% net margin and a 6% operating margin last year. United wasn’t much better. Only Southwest really had an enviable business. Delta was doing much better than United and American, but even they were just barely clinging to 10% margin, which isn’t much breathing room in that highly cyclical business.

The airlines were poised for collapse at the first sign of economic trouble. The pandemic and shutdowns were just the trigger this time. Just like 9/11 was the trigger last time.

It’s a crappy business. It needs to be regulated. Until Congress does that, it will suffer a never-ending cycle of (semi)boom and boost. But the executives aren’t bad at what they do. They make the best of the crappy business they’re stuck managing.

i agree with virtually everything you said. However we need less government regulation not more. The government needs to stay out of private business in general.

 

[paincorp]

I ag

i agree with virtually everything you said. However we need less government regulation not more. The government needs to stay out of private business in general.

Because that’s worked so well for airlines so far....

 

[manniax]

Ok but for the sake of argument lets say hes not banned from the industry and instead of 80 hes 40. How would he deal with corona?

The methods he used caused were so unpopular that they ended up causing some laws to be changed. You can no longer terminate union contracts just by filing Chapter 11 bankruptcy. So I honestly have no idea how he'd do things, but the way he reduced labor costs in the past would no longer work today.

 

[Atlanta]

The truth is anytime government gets involved they make things worse.
To make the statement :Because that’s worked so well for airlines so far..... is disingenuous on so many levels.
1. When was the last time government was not involved in the airlines business?
2. This whole fiasco in the aviation industry is in part because the government got involved in the public sector as a whole.. “in the name of safety”
So yes government should stay out.

 

[A1TAPE]

The methods he used caused were so unpopular that they ended up causing some laws to be changed. You can no longer terminate union contracts just by filing Chapter 11 bankruptcy. So I honestly have no idea how he'd do things, but the way he reduced labor costs in the past would no longer work today.

What would the odds be today that the big 3 would chapter 11 their way out of the ALPA IAM and FA + dispatcher contracts if they were legally allowed to? Also didn’t republic file a sham chapter 11 years ago to do just this?

 

[paincorp]

The truth is anytime government gets involved they make things worse.
To make the statement :Because that’s worked so well for airlines so far..... is disingenuous on so many levels.
1. When was the last time government was not involved in the airlines business?
2. This whole fiasco in the aviation industry is in part because the government got involved in the public sector as a whole.. “in the name of safety”
So yes government should stay out.

Man, can I have whatever you are smoking? This whole “corporations will be great on their own without regulation“ is complete • and unions prove that. Corporations only care about themselves, and they’ll do whatever is cheapest for them, if not regulated.

Also, if the government just “got out of the way” pretty much this entire industry would be unemployed at this very moment.

 

[KiloEchoVictor]

CARES is supposed to help pay scheduled hours. This forced reduction in hours doesn't smell right. On the other hand, some airlines are using min guarantee and reserve to pay pilots less than awarded.

The problem is that the CARES Act didn't allocate anywhere near enough to cover everybody's payroll. As usual, this is what happens when you put people (politicians) in charge of things they know zip about.

Be pissed about CEO salaries, stock buybacks or excessive corporate spending but nothing could prepare the airline industry for the effects of COVID19 and the financial stress it would put on airlines.

I think that's what people mean when they say "corporate greed." Not to mention all the nonsense that they waste money on when things are normal.

The basic principal is to have 3-6 months of operations in savings, I'm not even sure they had one month. To add to it they have a lot of debt, especially AA.

Yup. Bingo. Anybody who has worked for an airline in the last year knows that these companies piss away money on non-essential garbage like there's no tomorrow. It's all in the name of constantly expanding the business over the long-term, even if it means drowning yourself in debt in the short-term. That's fine as long as nothing ever goes wrong or interrupts your revenue stream in any appreciable way, but I think we know why that's a poor assumption to make.

If these companies prioritized solvency and stability over constant expansion of their operations, this whole thing wouldn't have even been a big deal.

 

[Atlanta]

Man, can I have whatever you are smoking? This whole “corporations will be great on their own without regulation“ is complete • and unions prove that. Corporations only care about themselves, and they’ll do whatever is cheapest for them, if not regulated.

Also, if the government just “got out of the way” pretty much this entire industry would be unemployed at this very moment.

Yes u can.. it’s called logic.
You talk about corporations as if they are some vague entity.. Corporations are run by people for people (usually share holders). I know you would love for CEO’s to answer to you but they answer to their board and shareholders.. No different than u answering to your boss!
That being said... your faith in government regulations is mind blowing. Not sure what you are smoking but you can keep it! Stop watching AOC YouTube videos.

 

[paincorp]

I’m going to end this now before we got APC in here, but to think a CEO is going to care more about you, me or the customer than the bottom line is absurd. There is only so much I will say publicly on a forum like this, but there is a cost benefit to everything, and EVERYTHING has a price tag on it, whether we want it to or not.

You don’t think some airline somewhere isn’t going to remove the 45 minute reserve if it wasn’t required? You don’t think an airline somewhere would cram seats on endlessly without regulation over evacuations? You don’t think letting the dispatcher and PIC make the decision about diversions, fuel, route, etc without regard to cost is a good idea? Those are all government requirements, my friend. Not to mention dispatchers are a requirement. I’m sure many regionals would furlough indefinitely the vast majority of their dispatchers if operational control was not a legal requirement.

Let’s keep the political punches out of here, ok?

 

[SlumTodd_Millionaire]

i agree with virtually everything you said. However we need less government regulation not more. The government needs to stay out of private business in general.

The airline industry functioned virtually flawlessly for half a century during the age of regulation. Ever since 1978, it’s been a nonstop dumpster fire. Get off of Ayn Rand’s jock.

The methods he used caused were so unpopular that they ended up causing some laws to be changed. You can no longer terminate union contracts just by filing Chapter 11 bankruptcy. So I honestly have no idea how he'd do things, but the way he reduced labor costs in the past would no longer work today.

Well, 1113(c) still makes it pretty easy. Ask any of us who lived through the early 2000s. Contracts were abrogated left and right. There’s no doubt Lorenzo would use his same playbook, it just has an extra step now to slow him down (slightly).

 

[ATLiens]

Yes u can.. it’s called logic.
You talk about corporations as if they are some vague entity.. Corporations are run by people for people (usually share holders). I know you would love for CEO’s to answer to you but they answer to their board and shareholders.. No different than u answering to your boss!
That being said... your faith in government regulations is mind blowing. Not sure what you are smoking but you can keep it! Stop watching AOC YouTube videos.

This sounds like something you may want to discuss with your therapist:


Corporate Stockholm Syndrome can be defined as employees of a business beginning to identify with—and being deeply loyal to—an employer who mistreats them (defined in this situation as verbal abuse, demanding overly long hours, and generally ignoring the wellbeing and emotional needs of the employee). As with the captor/captive dynamic, the employer is certainly in control of the employee’s fate (they sign the much-needed paycheck and generally can terminate employment at any time).


The employee experiencing Corporate Stockholm Syndrome typically displays a tendency to become emotionally attached to the company to the detriment of their own emotional health. The employee will also rationalize to themselves and to others the employer’s poor treatment of them as necessary for the good of the organization as a whole, and angrily defend the employer’s actions when those actions are questioned by an outsider. In other words, denial of the obvious.