United Airlines CEO threatens mass layoffs unless the federal government bails them out

[Exterous]

I don't disagree, but getting there average person to buy into that when their inflation adjusted income is no better than like 1975 is a hard sell.

We continually privatize profits and socialize losses. At some point there needs to be a total shift in the way of thinking about how our economy works. Our current MO is completely unsustainable. This isn't something any one person can accomplish. It's going to take a cultural shift in what it means to run a company profitably and who its stakeholders really are (hint: not the shareholders)

I agree but trying to fix that during a recession\depression\global pandemic is a very risky proposition. Make the wrong moves and you just make the situation worse for everyone, not just for the owners and workers of airlines.

Tough shit. Lot of companies are in the same boat. Tell United to ask Uncle Warren for bailout. Warren Buffett owns 8.8% of United stock. Buffett has enough cash to easily float United until demand returns.

You think Buffet keeps enough cash on hand to give United $3B per month? I'd like to see your reasoning behind that...

I'm only for supporting the airlines after Chapter 11. Let United and others file for bankruptcy. Let the shareholders and management get 100% wiped out on their stock equity holdings first. Don't bailout Warren Buffett. He has the cash to save the airlines if that's what he wants. Buffett has been greedy since the '08 bailout and have been heavily investing in companies doing huge stock buybacks. It was almost as if that's all he cared about. Buffett profited heavily from all the massive stock buybacks. Let him now suffer.

No way we should bailout any airlines before Chapter 11. Let them fail first.

There are some 620,000 employees that work for airlines and I guarantee you they will see layoffs, salary reductions, and negative benefit changes if the airlines go through bankruptcy. It's shortsighted to think they won't be hurt more by this than Buffett

 

[Exterous]

Let ONE airline collapse, as a lesson to their others.
Leave its corpse sitting out in the sun for a year, to remind them.

So they tried that in 2008 with Lehman Brothers. The result? Resulting panic undermined the more stable financial institutions - ones that didn't need financial assistance suddenly did, increasing the total amount necessary to keep everything afloat. Bernanke and Geitner point to that being one of their bigger failures of dealing with the crisis. I'm not saying the situation is the same here but it's a riskier proposition to do that than it seems

 

[ultimatebob]

Reading this thread, I get reminded of this YouTube video:

United is a terrible airline. It deserves to fail, or get bought out by a competitor at a bargain basement price.

Sure, those dummies who bought United stock on the deadcat bounce will suffer, but that's OK. They were idiots for doing that.

 

[Hayabusa Rider]

Rope is cheap.

But can it be made from hemp?

 

[Sonikku]

Let ONE airline collapse, as a lesson to their others.
Leave its corpse sitting out in the sun for a year, to remind them.

I nominate American Airlines.

 

[ponyo]

I agree but trying to fix that during a recession\depression\global pandemic is a very risky proposition. Make the wrong moves and you just make the situation worse for everyone, not just for the owners and workers of airlines.



You think Buffet keeps enough cash on hand to give United $3B per month? I'd like to see your reasoning behind that...



There are some 620,000 employees that work for airlines and I guarantee you they will see layoffs, salary reductions, and negative benefit changes if the airlines go through bankruptcy. It's shortsighted to think they won't be hurt more by this than Buffett

United doesn't need $3B per month. Let them layoff management and employees like every other business under stress and cut everything to the bone. Sure, if you keep everything status quo and party like 2019, then they need $3B per month. United and other airlines are going to get rid of many of their 620,000 employees no matter if we bail them out or not. People still with a job will see salary reduction and benefits. It will happen with or without bankruptcy. With or without bailout. Warren Buffett is sitting on $130 billion in cash. You think he doesn't have enough cash to bailout all his airline holdings? No, let Uncle Warren bailout his own investments. Government doesn't need to bailout the airlines. Wait for Chapter 11. Let the shareholders get wiped out. Then help.

Last I checked, United stock was still trading around $25 /share. You know there's thing opposite of stock buyback. It's called stock equity raise. Perhaps United Airlines should look into it. But I doubt the CEO is going to be as happy selling stock at $25 when they were busy buying for $90+ to enrich themselves and their shareholders. But shit happens. Tesla had to do equity raise June last year at around $240 so they would have enough cash and wouldn't go under. They also had to cut their spending to the bone and did bunch of layoffs. It's what happens in business. No one wants to do equity raise when their stock is low. But sometimes you have no choice.

So, no bailout until United does equity raise and dilutes the crap out of existing shareholders and management. No bailout until Chapter 11. No bailout for Warren Buffett. Like I said, Buffett has the cash to bailout the airlines himself if that's what he really wants. Bailout of United is bailout for Warren Buffett and the rich. I cannot get behind that. Nope.

 

[dank69]

Let them fail then spend the money on the laid off people instead. Screw greedy companies that can’t ride out a recession Due to poor planning/management.

Even better confiscate the CEO's money and use it to pay the displaced workers before using tax money.

 

[Fanatical Meat]

This why Obama should have put the fools behind the last recession in jail instead of a slap on the hand at best and a don't do it again scolding, now they are emboldened with the arrogant bail us out because we are too big to fail and we will tank the economy attitude.

Let them start at the top by cutting their pay/compensation no matter what "hide it from the tax man" creative financing package they reward themselves with before they lay off employees and only in proportion to their pay cuts, in this case 60% from their own mouths.

On this we agree, financial meltdown should have equaled more executive jail time. Fines are not penalties to these guys, jail is.

 

[Exterous]

United doesn't need $3B per month. Let them layoff management and employees like every other business under stress and cut everything to the bone. Sure, if you keep everything status quo and party like 2019, then they need $3B per month.

They would need more than that to keep the status quo. Even at reduced capacities they'll probably need close to that much given that the 5 months (march-july) gives them 60% of their cash flow for the year. We can quibble about exactly how accurate $3B is to keep them afloat with reduced operations but the cost is significant with expensive and illiquid assets that no one else will buy sitting idled, no income stream and significant obligations.

United and other airlines are going to get rid of many of their 620,000 employees no matter if we bail them out or not. People still with a job will see salary reduction and benefits. It will happen with or without bankruptcy. With or without bailout.

And yet many of the auto workers retained their jobs with the financial support offered to them. The difference between the two scenarios are significant both in terms of impact to those without the same means as a CEO and to the future benefits to the country as a whole (airlines take a long time to spin up). I'm not against strings attached to any assistance but I'm not so cold as to want to dump that many people on the unemployment lines that are already seeing significant increases.

Warren Buffett is sitting on $130 billion in cash.

Sitting on $130B in cash is kinda hard when you're 'only' worth $70B across all your investments.

Last I checked, United stock was still trading around $25 /share. You know there's thing opposite of stock buyback. It's called stock equity raise. Perhaps United Airlines should look into it.

If we assume that United 'only' needs $6B to hold it over for the next 4 months (which I think is low but we'll use for this example) using the current price United would need to double its current 248M shares. Doubling the number of shares would likely cause a notable decrease in stock price. I'd guess by 50% but lets say its only 33%. So United would need to sell a minimum of 320,000,000 shares in the next 4 months to get them $6B in cash. Good luck getting those sold....

 

[ponyo]

They would need more than that to keep the status quo. Even at reduced capacities they'll probably need close to that much given that the 5 months (march-july) gives them 60% of their cash flow for the year. We can quibble about exactly how accurate $3B is to keep them afloat with reduced operations but the cost is significant with expensive and illiquid assets that no one else will buy sitting idled, no income stream and significant obligations.



And yet many of the auto workers retained their jobs with the financial support offered to them. The difference between the two scenarios are significant both in terms of impact to those without the same means as a CEO and to the future benefits to the country as a whole (airlines take a long time to spin up). I'm not against strings attached to any assistance but I'm not so cold as to want to dump that many people on the unemployment lines that are already seeing significant increases.



Sitting on $130B in cash is kinda hard when you're 'only' worth $70B across all your investments.



If we assume that United 'only' needs $6B to hold it over for the next 4 months (which I think is low but we'll use for this example) using the current price United would need to double its current 248M shares. Doubling the number of shares would likely cause a notable decrease in stock price. I'd guess by 50% but lets say its only 33%. So United would need to sell a minimum of 320,000,000 shares in the next 4 months to get them $6B in cash. Good luck getting those sold....

There's not going to be status quo for awhile so we can dismiss your $3 billion a month figure.

Airlines can get nationalized and current equity shareholders completely wiped out. I'm ok with that kind of bailout and support. In that scenario, some of the workers will keep their job. It's basically Chapter 11 bankruptcy scenario.

Berkshire Hathaway is Warren Buffett's company. Berkshire Hathaway is sitting on $130 billion in cash. They own close to 22 million shares of United Airline stock. Here's Berkshire Hathaway portfolio as of December 31, 2019.
https://www.cnbc.com/berkshire-hathaway-portfolio/

Just like Buffett used Berkshire Hathaway cash to buy the stock in United Airlines, he can easily use the $130 billion in cash to buy more shares of United Airlines or just buyout the entire company outright for cash. But Buffett won't do that because he's extremely greedy and only wants unbelievable deals which no one else can get or has access to. He'll make United Airlines give him convertible bond that pays him like 10% interest and converts to stock at extremely low stock price so he can enrich himself from the panic at the expense of others. That's what he did with Goldman Sachs and others during the 2008 financial crisis. Like I said earlier, any US government bailout will be far more generous than any bailout terms offered by greedy Uncle Warren. But if Buffett thinks his investment will go to $0, you better believe he will act. You can bet he's talking with Trump and people in the administration right now to get sweetheart bailout package for himself and his airline investments in United Airlines, American, Southwest, and Delta. Warren Buffett talks the big talk about being a capitalist but when shit hits the fan, he's always looking for sweetheart deals and handouts too. In no way should Warren Buffett be helped and bailed out right now. He has more than enough money to bailout the airlines he owns. $130 billion in cash. That's a fact.

As for the market not being there for United Airlines equity raise, no that's not completely true. There's some room for equity raise. Like I said, the terms will be horrid and existing shareholders crushed, but if the other option is bankruptcy, you have to choose to live. It's like getting your arms and legs cut off. But it was United management that decided to not save their money for rainy day and buyback billions of stock at higher price. They can now sell stock at way lower price. That's how capitalism work. United Airlines isn't special. Fuck United Airlines. We'll be alright if they went bankrupt.

 

[ElFenix]

So they tried that in 2008 with Lehman Brothers. The result? Resulting panic undermined the more stable financial institutions - ones that didn't need financial assistance suddenly did, increasing the total amount necessary to keep everything afloat. Bernanke and Geitner point to that being one of their bigger failures of dealing with the crisis. I'm not saying the situation is the same here but it's a riskier proposition to do that than it seems

an airline failure doesn't lock up the rest of the country the way a bank failure does. when one big bank fails, all the rest of them look at their own balance sheets which are awash with shit, then realize they have no idea what the fuck is on everyone else's but you can assume that they're also awash with shit, and stop lending to each other. one airline failing doesn't make the others stop flying.

 

[Bubblehappy]

I don't understand what makes the airline industry so special that deserves a huge pile of money. They are no different than the service industry, where how many millions of people have lost their job in the past week in that industry alone.

A corporation the size of United should have enough money in the bank to weather the reduced travel storm for a while, and if they don't, then they should do what every other affected business has been forced to do. Ground planes, lay off staff, and operate at the level that the travel industry requires during these times.

 

[Dulanic]

I don't understand what makes the airline industry so special that deserves a huge pile of money. They are no different than the service industry, where how many millions of people have lost their job in the past week in that industry alone.

A corporation the size of United should have enough money in the bank to weather the reduced travel storm for a while, and if they don't, then they should do what every other affected business has been forced to do. Ground planes, lay off staff, and operate at the level that the travel industry requires during these times.

Nothing. My wife's company is hurt as bad or worse than a airline is. Trade shows are totally shutdown, but at least they are covering employees health insurance 100% while furloughed.

 

[Exterous]

Berkshire Hathaway is Warren Buffett's company.

When you said Warren Buffet I assumed you meant what you said.

As for the market not being there for United Airlines equity raise, no that's not completely true.

Yeah I never said that. My illustration was that they'll need more than that if this current situation continues much longer.

an airline failure doesn't lock up the rest of the country the way a bank failure does. when one big bank fails, all the rest of them look at their own balance sheets which are awash with shit, then realize they have no idea what the fuck is on everyone else's but you can assume that they're also awash with shit, and stop lending to each other. one airline failing doesn't make the others stop flying.

If we were to look at the statement from the 'finance is different and other industries don't need to be bailed out' then the auto industry bailout never should have happened. Now I'm not sure where you stand on that but the worst case scenario is that it cost $9.7B to save a few hundred thousand jobs - so it cost somewhere between $12,000 and $45,000 per job saved.

And you say 'one airline' but in reality there are at least two in severe danger(if not more): AA and United. Just those two alone are ~700,000 passengers per day on almost 12,000 flights. That's not something you easily replace. Others are being close lipped but I suspect Allegiant, Frontier and Alaska are also at substantial risk. Delta is likely the most stable (The Ford in this case if you will). Letting one fail will send the message to any potential investors and financers that they should stay away from airlines in their time of need. Stock price will fall. Loan terms will get more severe. The supporting cast of workers for everything airlines need on the ground will disappear. It's not necessarily rational but it is what happens. This will undermine the stability of the others and can easily push them into financial insolvency. Moral hazard is a tricky subject in times of financial crisis. How many hundreds of thousands of jobs do you want to add to the unemployment line to teach a lesson? And there are locations that are basically only served by a single airline. If the airline folds the businesses in that area will suffer and the remaining airlines won't be rushing to expand to fill the gaps. Not only did over expansion cause all the airlines issues in 2008/09 (They have since shown they will only cautiously grow capacity despite upticks in demand as meeting demand is risky as it's unpredictable over the long commitment timelines associated with high capital cost investments) but no one has the ability to pick up that many flights and passengers.

I don't understand what makes the airline industry so special that deserves a huge pile of money. They are no different than the service industry, where how many millions of people have lost their job in the past week in that industry alone.

This isn't an either\or and lots of areas are being discussed including the service industry. In the meantime low interest loans are now available for companies of all sizes. That said, unfortunately the airline industry does have some aspects that makes it special. For one our government let them get so big that one or two failing will cause huge disruptions with few competitors who could pick up the slack (which would have those competitors get even larger leaving us even more vulnerable in the future). Second the startup time of an airline and the capital costs involved, regulations, slot purchasing etc are significantly more arduous than the service industry. Starting a successful restaurant or hotel happens all the time by comparison. Starting a new airline is incredibly rare, let alone a successful one and it takes decades to build a robust and useful route network. American Airlines flies (flew) over 500,000 people on 6,700 flights per day. While I don't know for sure I doubt there is a single service company handles anywhere close to that. Third - the service industry doesn't have the same international competition and constrained resources. For example: If an airline goes bankrupt, its slots at important airports goes up for grabs and the chances to get those back are slim since they are in incredibly high demand and finite. This isn't a concern if several large airlines worldwide go under but if other airlines are propped up future growth of US airlines ends up capped well below current levels.

 

[DrunkenSano]

All bailouts should come with the requirements that all senior management of the company that was bailed out have a salary freeze and zero bonuses given (including stock options) until the company fully pays back the amount the government gave them to bail them out. Also, a third party must audit the company and how they spend money before any layoffs can happen. Before any layoffs can happen, the senior management should also have their salary and incentives frozen, so that those funds can go to the employees and only layoffs can happen if those resources are not enough.

 

[Exterous]

All bailouts should come with the requirements that all senior management of the company that was bailed out have a salary freeze and zero bonuses given (including stock options) until the company fully pays back the amount the government gave them to bail them out. Also, a third party must audit the company and how they spend money before any layoffs can happen. Before any layoffs can happen, the senior management should also have their salary and incentives frozen, so that those funds can go to the employees and only layoffs can happen if those resources are not enough.

Delta's CEO and Board has already stopped drawing a salary for at least the next 6 months. United's CEO and President have done the same along with Alaska's CEO. I haven't seen any coverage of how broad that is but likely doesn't include stock options (Delta's bonuses are performance based so I doubt they'll be getting any this time around.) Clearly not all the way there yet but at least a step. And the government was the final say in layoff discussions for the Auto Industry so I'm hopeful that that would continue - assuming they don't screw over people again like they did the Delphi salaried workers. (A small % of people but a completely avoidable situation)

 

[ponyo]

@Exterous, there is no need for the US government to bailout United Airlines. Berkshire Hathaway owns 8.8% of United Airlines. Uncle Warren will step in and save United Airlines if things get so bad that United is about to go under. He will not let his United investment go to $0. But he won't step in as long as he thinks the US government will bail out his airline investments. But because Buffett knows Trump will save the airlines, he won't act. So that's the part that makes me sick. We know Trump is going to blink before Buffett.

Berkshire Hathaway once owned 12% in the former investment bank Solomon Brothers. In 1990, when Solomon Brothers was about to go under because of couple rogue traders, Uncle Warren stepped in to save his investment from going to $0. Buffett even ran Solomon Brothers for short period of time to restore confidence and save his investment. Uncle Warren later reaped double on his investment in Solomon Brothers when it was sold to Travelers in 1997.

So we have past proof Uncle Warren will step in to save his investments from going to $0. But like I said, Uncle Warren is going to rape United Airlines and make them give him crazy amount of equity and bonds in return for saving them. Which is why United Airlines and others are asking Trump and the Federal government to bail them out instead of Uncle Warren. Because they know US government is stupid and will give them far better deal and terms than Warren Buffett. Which is why I'm so pissed that the Federal government is going to bailout the airlines. Warren Buffett doesn't need to be bailed out. Uncle Warren wins yet again.

 

[Jhhnn]

@Exterous, there is no need for the US government to bailout United Airlines. Berkshire Hathaway owns 8.8% of United Airlines. Uncle Warren will step in and save United Airlines if things get so bad that United is about to go under. He will not let his United investment go to $0. But he won't step in as long as he thinks the US government will bail out his airline investments. But because Buffett knows Trump will save the airlines, he won't act. So that's the part that makes me sick. We know Trump is going to blink before Buffett.

Berkshire Hathaway once owned 12% in the former investment bank Solomon Brothers. In 1990, when Solomon Brothers was about to go under because of couple rogue traders, Uncle Warren stepped in to save his investment from going to $0. Buffett even ran Solomon Brothers for short period of time to restore confidence and save his investment. Uncle Warren later reaped double on his investment in Solomon Brothers when it was sold to Travelers in 1997.

So we have past proof Uncle Warren will step in to save his investments from going to $0. But like I said, Uncle Warren is going to rape United Airlines and make them give him crazy amount of equity and bonds in return for saving them. Which is why United Airlines and others are asking Trump and the Federal government to bail them out instead of Uncle Warren. Because they know US government is stupid and will give them far better deal and terms than Warren Buffett. Which is why I'm so pissed that the Federal government is going to bailout the airlines. Warren Buffett doesn't need to be bailed out. Uncle Warren wins yet again.

So what? The whole industry is awash in unsustainable debt. They can't pay the bond holders. Tax cuts, stock buybacks & more debt was the way the execs made the most money. Everybody who sold stock back to the company made money. The commercial credit guys made money. Money market funds made money. On paper, anyway. It's the same across wide swaths of business. So now that investors want cash instead of paper assets it's locked up in paper nobody wants to buy, so fund managers are forced to sell at a loss to meet obligations. Now it's a rout, revealing a systemic weakness at the very heart of financialized Capitalism.

 

[Thump553]

Precisely the situation that Chapter 11 bankruptcy was created. Reorganize them. As per ordinary corporate law, the shareholders take the first burden, then the bondholders. Will cause a lot of pain but will can investors in the future to run from instead of to companies that are spending their capital on stock buybacks.

This is a much lower priority for Trump's one trillion (now they are talking two trillion) bill than pumping the money into needed medical supplies and services, then the average voter through expanded unemployment comp, etc.

 

[pmv]

I'm not a fan of airlines - they are already effectively subsidized because of the environmental harm they cause [actually, in Europe at least, they seem to get an extra-favourable tax-regime compared to other forms of transport]. And I'm not sure why they can't just be nationalised if we think they are essential services that can't be allowed to fail.

But I suspect opinions might be divided on this sort of thing, perhaps not necessarily along existing party lines?

Also, it seems as if air-travel is considered to be more of a necessity in the US than in some countries.

It's morally repulsive how large corporations are exploiting this crisis. Workers will suffer | Robert Reich

Using power and privilege to exploit the weak and vulnerable in the face of a common threat is morally repugnant. Call it ‘Burring’ after Richard Burr’s stock sell-off

www.theguardian.com

 

[Jhhnn]

Large scale stock buybacks are a magnificent flimflam. I get that corps want to buffer the market with holdings of their own paper but that needs to be a very small % of shares outstanding. When they pay dividends to shareholders that reduces the theoretical net worth of the company, rightfully so. When they buy back stock, it's counted as assets they can borrow against even though the value is artificially elevated by the buy backs. When it all falls down the perps already got their money. It's perfectly legal.

 

[Sheik Yerbouti]

That ceo can cough up most of his salary to help those employees, if he truly gave a fuck.

 

[ElFenix]

If we were to look at the statement from the 'finance is different and other industries don't need to be bailed out' then the auto industry bailout never should have happened. Now I'm not sure where you stand on that but the worst case scenario is that it cost $9.7B to save a few hundred thousand jobs - so it cost somewhere between $12,000 and $45,000 per job saved.\

speaking of things people didn't say

And you say 'one airline' but in reality there are at least two in severe danger(if not more): AA and United. Just those two alone are ~700,000 passengers per day on almost 12,000 flights. That's not something you easily replace. Others are being close lipped but I suspect Allegiant, Frontier and Alaska are also at substantial risk. Delta is likely the most stable (The Ford in this case if you will). Letting one fail will send the message to any potential investors and financers that they should stay away from airlines in their time of need. Stock price will fall. Loan terms will get more severe. The supporting cast of workers for everything airlines need on the ground will disappear.

1) unlike financial value, the airlines have hard assets in the form of aircraft. if an airline fails those aircraft aren't suddenly unusable. demand for travel will be there again. if there's really that many pax then those aircraft will be put to use by whatever airlines still remain. this isn't like ford and gm where the parts aren't interchangeable. a CFM engine on a 737 in AA's fleet is the same as a CFM engine on a 737 in UA's fleet is the same as a CFM engine in WN's fleet. AA failing (again) or UA failing (again) doesn't have the same network knock on effects of the car makers or boeing. completely different order of magnitude, probably several.

2) the airlines have historically not been profitable. bankruptcy is part of the long term business plan. maybe it's time we learn that lesson as a society and figure some other way to get from A to B. would be nice if it didn't fuck up the environment as well.

 

[s0me0nesmind1]

double post

 

[s0me0nesmind1]

Delta's CEO and Board has already stopped drawing a salary for at least the next 6 months. United's CEO and President have done the same along with Alaska's CEO. I haven't seen any coverage of how broad that is but likely doesn't include stock options (Delta's bonuses are performance based so I doubt they'll be getting any this time around.) Clearly not all the way there yet but at least a step. And the government was the final say in layoff discussions for the Auto Industry so I'm hopeful that that would continue - assuming they don't screw over people again like they did the Delphi salaried workers. (A small % of people but a completely avoidable situation)

lol people here are so business retarded that they would rather raise their snout to the concept of 10,000 people being laid off - and would instead rather see 300,000 people being unemployed from a corporate failure. Go figure - out of sight, out of mind for a lot of folks here..


"WHY DONT THEY HAVE $20B IN CASH SAVED UP IN AN EMERGENCY?! OMG they are SOOO IRRESPONSIBLE!"