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    • In 2002 United Airlines filed for chapter 11 bankruptcy, restructured and went on to become highly profitable.

      In 2005 Delta Airlines filed for chapter 11 bankruptcy, restructured and went on to become highly profitable.

      In 2011 American Airlines filed for chapter 11 bankruptcy, restructured and went on to become highly profitable.

      In the last decade according to Bloomberg major US airlines have used 96% of their free cash flow on buy-backs and according to the NASDAQ 26% of operating cash flow on buy-backs.

      If the airlines aren't bailed out by tax payers what would happen? History seems to indicate that the financial markets are very efficient at restructuring companies worth saving... life goes on, the employees retain their jobs, the balance sheet is cleaned up and the pain is mostly for the current shareholders who get wiped out. Isn't that the risk of prospecting via the stock market?

    • I'm not advocating for or against a bailout but I don't think that the USA airline industry ever fully recovered from the aftermath of Sept. 11, 2001.

      If you consider the number of Airline employees prior to that day and then look at what happened after that it is sobering. The lowest point (as far as employment is concerned) was in or around 2010. After that the industry began rebuilding but it never reached the number of employees that worked for an airline company in August 2001. It didn't even come close.

    • Interesting. what are the employment levels by year?

      More people fly then ever how much can be attributed to efficiencies and elimination of redundant jobs post mergers.

    • I retired from AA in 2005, 9 years early. I retired due to the way my pilot/retiree lump sum payout from the "A Fund" and "B Fund" were calculated AND I was afraid of a bankruptcy filing. After declaring bankruptcy, AA pilot retirement plans drastically changed and post-bankruptcy retirees ended up receiving dimes on the dollar.

      The airlines mentioned declared bankruptcy in order to void their contracts with not only union labor, but vendors supplying goods and services as well. By voiding the contracts, employees, vendors and creditors were placed in a position of excepting far less than the goods and services that had been provided. Further, they were forced to negotiate new contracts going forward.

      I not a lawyer so I'm passing dated information relayed to me in the early 2000's. The bankruptcy law(s) used by the airlines were (are) for one-time use. In order words, the airlines cannot use the same chapter filings this time around.

      The airlines (including FedEx and UPS) are considered national economic assets. World wide, airlines make up 3.7% of GDP (3.7 trillion USD).

      If one airline was in economic dire straits, I would agree that market forces would balance out. But, when the world has come to an economic standstill, I disagree market forces can balance the industry.

      But, if we're actually talking about the industry as a whole participating in the stimulus packages passed by Congress, well perhaps this is how things balance out...

      It is a slow day in the small town of Lizard Lick, NC, and streets are deserted. Times are tough, everybody is in debt, and everybody is living on credit. 

      A tourist visiting the area drives through town, stops at the motel, and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs to pick one for the night.

      As soon as he walks upstairs, the motel owner grabs the bill and runs next door to pay his debt to the butcher. 

      The butcher takes the $100 and runs down the street to retire his debt to the pig farmer. 

      The pig farmer takes the $100 and heads off to pay his bill to his supplier, the Co-op. 

      The guy at the Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her "services" on credit. 

      The hooker rushes to the hotel and pays off her room bill with the hotel owner. 

      The hotel proprietor then places the $100 back on the counter so the traveler will not suspect anything. 

      At that moment the traveler comes down the stairs, states that the rooms are not satisfactory, picks up the $100 bill and leaves.

      No one produced anything. No one earned anything... However, the whole town is now out of debt and now looks to the future with a lot more optimism. And that, ladies and gentlemen, is how a Stimulus package works.

    • thanks for that and I like the story... don’t tax payers pay the bill for the stimulus at some point though? We’re borrowing against future revenue and we’ve been running at a deficit.

    • I think we are now looking at our great-great grandkids assuming OUR debt.

      I'm not an economist either, just took Econ 101.

      Modern Monetary Theory (MMT) has me more than just a bit worried. MMT is more than printing money for stimulus packages. It is printing as much money as you possibly can and giving it to as many segments of society that want it at a flat rate of 0%. My interpretation for the most part.

      What I can't grasp, if a country heads down the MMT lane, what keeps it from becoming another Venezuela? Venezuela 2019 inflation was 1370001.05%. I can't even grasp that percentage.

      My dad started buying Buffett's stock in 1965. I've owned the Baby "B"s for many, many years. I will alway bet on Warren and his thoughts regarding MMT and macroeconomics.

    • I agree with @gorudy , it is a nice story. However, it is not quite the panacea we would hope for.

      Before the tourist arrives the net debt in the system is $100. After he leaves the net debt is still $100, because although the hotel owner has had expunged the hooker's debt he nevertheless has to give the $100 back to the tourist. In fact, the post-tourist scenario is far worse. In the beginning each creditor at least had claims against someone else. Afterwards the poor old hotel owner is $100 down but now has no claim against anyone and, therefore, zero chance to mitigate. A debt has been converted to a crystallised loss.

      Is the hotel owner analogous to the tax payer in this case? Probably not - if this were the case, what would be the analogue of the hotel owner's debt to the butcher?

    • Increasingly, even those of us with a background in economics get a little perplexed as to what the long term consequences of current stimulus packages will be.

      Will "helicopter money" create hyperinflation or, indeed, any appreciable inflation? I am guessing (and hoping) it will not. Traditional theory says that surplus supply of a commodity will, "ceteris paribus" (i.e. other things being equal) cause its value to drop.

      There is a terrific section in Douglas Adams' "Hitchhiker's Guide to the Galaxy" where space travellers marooned on ancient Earth decide to adopt the leaf as their standard currency unit. They notice that "due to the high level of leaf availability, we have run into a bit of an inflation problem, with a current exchange rate of 3 deciduous forests for one ship's biscuit".

      However, developed economies are mostly very highly leveraged. In stressed times a large part of stimulus package receipts are pointed at paying down debt, or at the very least preventing that debt from accreting. Since most debt is fixed in value, and does not fluctuate in the same way as consumer goods do, this should result in a minimal effect on inflation. Debt cannot inflate*, and the surplus money is largely not directed towards consumption, ergo little retail price inflation.

      It is a bit of a ropey explanation, I know. But I am rattling it off on an Easter Monday when I should be doing other things. Nevertheless, acknowledging where the stimulus funds will be applied by recipients feels like it might give an insight into the inflationary outcome.

      My head hurts.

      *Obviously the real value of debt repayment can be reduced by inflation, but here I am speaking of the nominal, or face value debt level.