US airlines have a long history of enjoying government subsidies. See the leaked list of subsidies for the US aviation industry here. But they also have a long history of bankruptcies. So it seems that the US government has wasted billions of tax dollars by subsidizing US carriers.
Middle Eastern competitors
Ironically, 5 US airlines meet on July 20, 2019 with Donald Trump in the White House. Their goal is to advocate operational limitations for their Middle Eastern competitors. Obviously, they prefer this over improving their own inferior products. But Delta Air Lines’ CEO Ed Bastian is absent due to his travel schedule.
The airline CEOs seem to have overlooked Trump’s extreme narcism, which is very peculiar. It is clear that Trump is offended by Bastian’s absence. He brings it up several times in the course of the meeting, according to a White House official. As a result, Trump tells the airline CEOs to file a complaint with the federal regulator. He won’t do anything for them.
You may wonder how it is possible that the US government wasted so much money on companies that are being run in a peculiar way. Their CEOs are being paid more than $10 million a year as remuneration. Moreover, they receive annually lots of shares for free that their companies issue to the disadvantage of existing shareholders. After all, their shares will be diluted and the dividend per share will decrease due to the issue of new shares.
Buying back stock
In addition, the airline CEOs have spent billions on buying back stock. This means they repurchase shares in their companies. As there are fewer shares among investors, the dividend per share will go up. Therefore, shareholders may have the illusion that the company is making more profit.
But basically, it is a sign the CEOs don’t know a better way to use that money to increase the company’s profitability. Product improvement doesn’t occur to them. It illustrates they are a kind of managers or bookkeepers rather than entrepreneurs.
Subsidizing US carriers
Now they look at the federal government for help in the form of cash. Had they not spent the cash on buyback programs, they would have had cash to weather problems the coronavirus is now creating.
Related: A strange White House meeting
Tags: airline subsidies, bankruptcies, buyback programs