Do The Right Thing

I'm angry that I have to write this note.

I'm angry that when we have people dying left and right in this country, when there is an urgent need for ALL of us to spend ALL of our time helping our families, helping our neighbors, helping our emergency responders and healthcare workers and social service providers to DO THEIR JOBS ... that I have to write a note about the airline industry and how to structure the bail-out of United, Delta, American and Southwest. And Boeing.

But I do have to write this note, because of course the raccoons and the high-functioning sociopaths are out in force on this, looking to get their private losses socialized and their private gains locked in. Looking to get their 30 pieces of silver.

So I'm not going to spend a lot of time on this. I'm just going to give all of you the facts and let you all take it from here. Because if this goes down anywhere near where I think it's going to go down ... well, one day when we've passed through this valley there's going to be a reckoning, and we will visit our righteous anger on those who abused the public trust.

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  1. Claw it the F back. Make these whores (actually whores serve an important purpose and exchange tangible benefits for often dangerous work–maybe they’re just raccoons as you say) disgorge their ill gotten gains and sell the stock and let that go the company FIRST. Sure it may tank the share value but they sure as heck don’t deserve it. Muilenberg too. Rommetty too. You don’t get to keep it. Mr. McConnell, you up for that? Ha, didn’t think so.

  2. Consider this. The US gov’t lost $11 billion on the GM bailout. No surprise, the company had $100 billion of losses in the decade leading up to the crisis. The US airlines industry has contributed over $64 million in political “contributions” split evenly between dems and repubs, since 1990. Who do you think the industry was seeking to gain an advantage over. The decision is already made. This explains the whimsical attitude toward risk.

  3. Permission to share with my Delta pilot buddies on a private bulletin board?

  4. Avatar for Dean Dean says:

    What started in the housing industry, has spread throughout ‘institutional’ or large asset corporate America. And we’re suppose to be the leaders of the ‘free’ world. These trees of greed need shaken. And fruits of power redistributed. Clawing back stock based compensation, of say over $5m a year, is a start. Regardless, financial engineering has ‘de’-choiced Americans - mortgaging decisions (power), savings (capital) and stewardship (property) for a super elite ‘managerial class’. Enough. That thinking is worse than magical, it’s become predatory and dangerous. Do the right thing, indeed.

  5. Avatar for bhunt bhunt says:

    Permission granted!

  6. My only caveat is that in the current regime, we will end up with Don Jr. and Eric as COB of two major airlines.

  7. Could not download the pdf. Premium subscriber. No help desk.

  8. So I’m admittedly a novice at all this, but isn’t there a remedy called bankruptcy? The airlines have done this repeatedly over the years (and dumped their pension obligations on the PBGC btw) and they kept flying and had few cancellations that I can remember. Shareholders wiped out as they should be. Creditors get company. New stock issued. Reset button hit. Other than the fact that it’ll never happen because the players that stand to lose under that scenario are too well connected, please tell me what’s wrong with that process in this situation?

  9. Avatar for bhunt bhunt says:

    There’s no PDF download capability on mobile OS, but should work on any non-mobile system. Please email [email protected] if you continue to have problems and we’ll troubleshoot with you.

  10. Avatar for bhunt bhunt says:

    There’s an enormous amount of collateral damage if you go the BK route, and it throws everything into court, where anything can happen and everything happens slowly. All the same, I think that’s the right course for airlines that can’t raise new equity, like (I suspect) American.

  11. Ben- Thanks for doing the hard work so the pack is well informed to push actual facts and logic into the political debate ahead. Given the list of industries run in “financialization” mode we need to raise our voices to assure we don’t waste this crisis on the kind of ill-designed handouts that were a feature of 2008-9. We have to BITFD in order to clear the decks to have a better future. Everyone needs to make sure their extended circle understands this core faulty feature of share buybacks (as we watch the banks stop theirs down 50% in share price!).

  12. Hi Ben,

    Do I have permission to share this post with the congressional leadership (I use that term VERY loosely) from Michigan? I’d like to use it to vent my supreme distaste for any bailout short of the terms you list in the post. I’m still fuming from the TARP bailout in 2008. My “friends” at Bank of America took that handout, which of course I with the rest of the business people in the US paid for, then turned around and pulled my loan because our organization did not fit their “box”. Thank God for the hometown bank (Northbrook Bank of Illinois) who came to our rescue and allowed me to continue to run my company and employ 100 other families. I’d love to shove a bailout right up the asses of BA and their cohort airlines (and the “too big to fail” banks too!).

  13. The conceptual bankruptcy option has been corrupted just as much as Board governance and exec comp. Recall the many ch. 11 airline bankruptcies of the 80s (Continental, Frontier, Eastern, Pan Am, America West, also Northwest who didn’t file after an 11th hour reprieve). In every case fleets and operations were reduced, managements, networks and strategies were significantly changed, and in three cases the shrunken carrier was sold off. Totally different in the 21st Century. The big boys this time, with multi-year stays in BK (USAir 02-05, United 02-06, Northwest 05-07, Delta 05-07, American 11-13). In each case the management that had run the company into the ground not only remained entrenched (by preventing competing plans) but pocketed millions (Glen Tilton of UA took 4 years to come up with a semi-plausible reorg plan and got $30m). Draconian cuts to labor contracts (with pension cuts funded by taxpayers) rubber stamped without providing the evidence showing they were critical to survival, but creditor recovery limited because big spending plans on aircraft and sweetheart credit card deals were untouched. Doug Parker had a much more positive role here, as he was the only insider willing to challenge incumbents terrible plans (at DL and AA). But emergence under his AA reorg plan (merger with US) was delayed 15 months until he agreed to tens of millions in payouts to the failed AA execs and allowed McKinsey and Rothchild to run up similar billings on their failed (non-merger) reorg plan. (note:I helped write NW’s 93 BK filing and worked with the creditors committee on 4 more recent airline bankruptcies)

  14. Avatar for bhunt bhunt says:

    Please do!!

  15. Avatar for jeff1 jeff1 says:

    Brilliant and on point. Thank you!

  16. Thanks for the impressive blocking and tackling on this. I’d like to share this with Vermont’s delegation.

  17. This is awesome. It’s like walking into a court room and realizing that the lawyer representing the little guy against the some corporation that was planning on steamrolling another under-resourced annoyance is actually the best lawyer in the world and willing to work for free. ET for “Public Defender” after the bonfire!

  18. Point #4 does not go far enough. The only way to make sure this never happens again is to disallow dividends, buybacks, AND increased net debt for EACH AND EVERY corporation that is Too Big To Fail until each one achieves a level of liquidity that would allow it to survive for a year without raising incremental capital. Once a company achieve this level of liquidity it can allocate capital however it wants. Until that point, it is both unjust and economically harmful to allow systemically important companies to operate with leverage that almost guarantees some of them will require bailouts every 10 years.

    The irony of this policy is that buybacks are so horribly timed that there is a chance it would actually increase shareholder returns over the long term by encouraging countercyclical rather than pro-cyclical buybacks.

  19. Avatar for bhunt bhunt says:

    Please share!

  20. Bravo and Thank You!! As a Vermonter who does not want Bernie as President, I nonetheless feel connected to him on some issues. Your piece speaks to one of those connections, and I’d bet that many others across the political spectrum feel similar. Perhaps a few mini-revolutions tailored to specific situations would be appropriate.

  21. Avatar for olowe olowe says:

    Great. Going to NC delegation today. Thanks.

  22. This is so good, Ben, thanks! We used to say - back in the days where 'alternative data sets" meant hand-entering things - that there was a “return to tedium”. I’m sure it was tedious to put those numbers together but it really was worth it. I’m sending your recommendations to Barbara Lee now (did you ever think you and her would be on the same side?).

  23. Avatar for falao falao says:

    Ben, FYI: It’s not working on my PC either. Windows 10 / Brave browser. I’m a Premium subrsciber, it says “This content requires a higher level of Membership.” I’m thinking this is a setting/flag issue rather than a browser platform related problem.

    (I’m trying to get this printed today to send to my congressional representatives.)

  24. Am I hearing an echo of the past- “too big to fail?” And exactly what conditions have resulted in companies like the airlines having these oligarchic, market monopolies in the first place? Just like our approach to healthcare and (poor) preparation for pandemics, we celebrate the fruits of allowing consolidation through regulatory manipulation and political power until we crash and pay for it with pain and cost, not just inconvenience and supposed “diminished” liberty. Let’s fix this! I like your proposal and want to send it to my representatives as well and hold them accountable and unable to plead ignorance. Thank you! PS- I am more of a fan of the SW Airlines approach, too.

  25. Avatar for bhunt bhunt says:

    Just sent a PDF copy to the email address we have on file for you.

  26. Avatar for bhunt bhunt says:

    Thanks, Kevin! (and no re: Barbara Lee!)

  27. Ben,

    Fact; They won.
    They got their Trillions.
    Wuhan is the new Detroit.
    Add in Just In Time supply chain to Just always at razor thin margins of debt = start a panic, get a bailout.

    What they apparently didn’t want from reading Lockdown D+6 major media was an actual nationwide shutdown, but they’ve got it.

    The Wuhan Doom Virus isn’t of course living up to its apocalyptic hype.

    So now they are on reverse course, second thoughts. They’ve set off a panic worse than 9/11.

    Rhode Island police are quarantining NY residents - by force.

    Raccoon City (NYC) of course wanted some dramatic attention too ^ but as you can see its not going the way of the pretty people’s wont.

    The politicians at least with money are being far more sensible by sharing the bounty and the debt forgiveness with the people.

    Because that’s all this was; Debt forgiveness for the Banksters.

    And now its out of control.

    I for one welcome the new Republican Socialist Party.

    Because I like that outcome better than a Right Wing Jacobinism Revolution, and yes that storyline points where you think it would.

    Oh not at first.
    Only after they discover they don’t like certain strangers.

    The Right wing Jacobins by the way are nearly uniformly young, and of the dispossessed officially OK to Hate demographic.

    With that as a likely winner of a struggle; FORWARD !! With Comrade Secretary Trump!!

  28. Reflecting on this conversation this week, I couldn’t help but think “How quaint”. Discussing the rules that should apply to certain Coronavirus bailouts now seems so passé. Why in the world would a company opt for a bailout with strings attached when the Fed has effectively nationalized the corporate bond market, offering covenant-free loans with immediate forbearance to anyone and everyone? And for those who would argue that the Fed is not buying junk, covenant-lite or leveraged loans, I would only reply “Yet” or as Ben likes to say “you’re just not paying attention”. I can imagine the ratings agencies, who even before the virus were woefully behind the curve on properly reflecting risk in the corporate credit market, will be under significant pressure to not downgrade (in fact, I think I heard Cramer say they should stop downgrading this past week).

    No wonder BA stock doubled this week. Why in the world would they take the bailout when they have access to PMCCF? And while I appreciate the tutorial by Mr. Horan on how the bankruptcy process can be just as fraught with peril as a bailout (sigh, I guess no system filled by corrupt people is beyond corruption), I do feel that the process is at least fairer to the most people in society and contains less moral hazard than a nationalization of the corporate debt market. And I haven’t even mentioned the rest of the Fed’s alphabet soup of SPVs or the suspension of the FOIA (accountability anyone? Ha ha ha!)

    I think Oppenheimer was misquoted (and by extension, Vishnu mistranslated). I think what he said was “Now I am become debt, the destroyer of worlds”.

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