What does it mean that airlines shouldn’t be allowed to buy back stocks?

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What does it mean that airlines shouldn’t be allowed to buy back stocks?

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8 Answers

Anonymous 0 Comments

Company A is represented by 100 shares of stock valued at $1 million/share or $100 million total.

Company A buys back 50 of those shares. Since those shares now belong to the company, the remaining 50 shares outstanding now represent total ownership of Company A. It’s the exact opposite of a stock split.

Company A spent $50 million to do this, and is now worth $50 million. The stock price effectively hasn’t changed, the company has “lost” half its value, while shareholders just received a massive cash payment.

Company A, an airline suffering loss of business due to the epidemic, seeks a government bailout to the tune of $50 million. While Company A stock would have lost value as part of the recession, the buyback directly benefits the shareholders who turn right around and request free money from the government.

From Wikipedia:
> It is relatively easy for insiders to capture insider-trading-like gains through the use of “open market repurchases”. Such transactions are legal and generally encouraged by regulators through safe harbours against insider trading liability.

TL;DR – Certain airline rat bastard shareholders used a stock buyback to *legally* get away with insider trading, with the intention of immediately seeking a government bailout in the wake of a disaster. The rich are capitalizing on a disaster to make a quick buck at the taxpayers’ expense.

Anonymous 0 Comments

They buy their own shares if they have extra cash laying around instead of paying it out to shareholders. That being banned. It can be bad because whenever they have extra cash they just buy their own stock instead of saving it.

edit: for the brainlets who downvote this comment. The above poster’s explanation is not correct, this one is.

Anonymous 0 Comments

So, basically, when times were good and they had profits (all those add on fees and reduced gas prices, etc) they used the money to buy back stock and increase shareholder value. Now, they have no extra money to ride out the storm and want a taxpayer funded bail out. Give them loans to keep the industry alive and make them pay it back with interest. We had a saying at work, “lack of planning on your part does not constitute an emergency on my part.”

Anonymous 0 Comments

Let’s imagine that 5 siblings own a rental property that is worth $500,000 and produces rent of $2,000 per month.

To make the accounting simple, we’ll say that the siblings incorporated and each got 10,000 shares in the house. So there are 50,000 shares each worth about $10.

Let’s say that you have a policy of sending $1,000 of the rent out to the owners every month (you’re using the other $1,000 to save to replace a roof that’s only got a few years left). So every month each share gets $0.02 or each owner gets $200.

Now lets say that after a year of saving there’s $12,000 in the roof fund, but 3 siblings vote to spend the some of the roof savings buying shares back from any sibling that wants to sell. So they take $10,000 out of the roof fund and buy 1,000 shares of the house.

Now there are only 49,000 shares so each share gets a little more each month from the same $1,000 payment, and at the end of that year they spend another $10,200 of the roof fund buying back another 1,000 shares.

The next year, the payment per share grows a little more. If this continues for 4-5 years, the payment keeps growing slowly every year (making each remaining share more valuable even if the house doesn’t rise in value). This also means the value of their shares rises dramatically, if the house appreciates.

Unfortunately, when the roof finally fails, the owners suddenly need to spend $50,000 and there may only be $10,000 in the roof savings and their father is angry that they spent the savings they were supposed to be saving to replace the roof increasing the value of their shares.

So when they ask their dad for money to replace the roof, he’ll probably pay for the roof to be replaced, to prevent the house from being destroyed, but he may use his leverage gained by saving the house to change how they operate the business (forcing them to save money for known future problems).

Anonymous 0 Comments

In a nutshell tax payers money keep the investors happy by government handing over (tax payers) free money to them for them to buy their stocks back……

Anonymous 0 Comments

Essentially companies for the past 30ish years have been using excess cash to repurchase their own stock. This increases stock price by lowering the amount of outstanding shares without changing the effective earnings of the company.

This also means those companies aren’t sitting on as large of cash reserves as they could have. It also means the repurchase of stock is risky because if their company struggles, not only are they struggling, but that cash reserve which was converted to their own stock will plummet in value itself.

Essentially instead of saving adequate amounts of cash to handle economic issues, these companies have blown through huge sums of cash to artificially inflate their stock price. They now can’t simply sell off the stock for cash or they will destroy their stock price, but they need cash as their earnings are starting to tank. They want a bailout because they failed to properly reinvest their earnings in a way which would allow them to survive a temporary economic downturn.

Anonymous 0 Comments

Buying back the stocks is a smart business move when the stock price is temporarily down. Later when it goes up, the company has some working capital that they can use in a variety of ways.

The problem comes if they soon claim to be broke, and out of cash. Then, they will require some kind of tax-money bailout, while they are simultaneously giving their executives stock bonuses.

Anonymous 0 Comments

There’s nothing wrong with a profitable company buying back stock, it’s a legitimate way for the company to invest in itself.

The more stock the company owns, the less dividend it has to pay to shareholders, the more profitable the company becomes.

The problem is companies buying back stock not because they are in a financial position to do so, but because:

A) The stock is cheap.

B) They are hoping they can use up all their cash reserves and then be propped up by government bailouts (i.e free money). This will result in better profits in future years.