Packaged bankruptcy: Airlines Edition

Why stop at Chapter 11? Read all of them to be the true erudite

Viren Mohindra

Apr 12, 2020

2-min read

*2A beautiful Jet Blue Airbus A320-200 at Logan Airport Terminal C. Photo by Ashim D’Silva*

Mindless Twitter Rantings

Recently, I got into a bit of a tiff with one of my favorite authors and essayists, none other than Taleb.

Nassim Nicholas Taleb @nntaleb

Explain to me why we should spent taxpayer money to bailout companies (airlines) who spent their cash buying their own stock so the CEO gets optionality, instead of having a crisis buffer. We should bail out individuals based on needs, not corporations. #Moralhazard

By tiff, I mean I disagreed with a certain statement he made and retweet quoted him:

Viren Mohindra @VirenMohindra

I initially sided with you, but *more* research shifted my opinion: 1) buybacks also benefit the numerous PPFs that hold it, not just c-level 2) management compensation is based off stock performance metrics; they're paid in stock; they will 'look out' for the shareholder * 1/n

Nassim Nicholas Taleb @nntaleb

Armed with my tech-trash persona of being ‘fiscally conservative but socially liberal’, I went on a 12-tweet rant to demystify the consequences of a bankruptcy for the airline industry and why I thought it was in everyone’s benefit to rescue them:

Viren Mohindra @VirenMohindra

* As long as shareholder’s desired investing time horizons align with the manager’s career timeline horizon.. You might act like they're gaming it for only themselves but they're gaming it for EVERYONE involved. Socialism at its finest. Maybe not so much employees and ESOPs 2/n

Viren Mohindra @VirenMohindra

3) Not ready for Chapter 11s in this industry, too big to fail et all "Since 2000, 51 U.S. passenger and cargo airlines have filed for bankruptcy -- of which 13 were in 2008 alone." - Office of Inspector General on Aviation Industry Performance 2008-2011 3/n

Viren Mohindra @VirenMohindra

4) M&A (well mostly only mergers) assisted in assuaging "previously competing flights" and reducing "redundant hub operations as well as consolidating operations." optimization and a massive overhaul is required, and this is where the government can step in

Viren Mohindra @VirenMohindra

5) socio-economic, political landscape won't allow indictments and punishment for mismanagement/ gross disregard by upper levels, there is too much at stake. Thousands of defense contracts could potentially be null and void.. also who else is there to fill the space

Viren Mohindra @VirenMohindra

6) airlines are a utility, not a service, and without domestic air travel: a) employment rate drops. ATC jobs take a min 3 yrs to fill - See PATCO v. Raegan: FAA initially claimed staffing levels would be restored in 2 years, took closer to 10 before returning to 'normal' 5/n

Viren Mohindra @VirenMohindra

Some figures from ICAO.. b) North America accounted for 37% of global employment in the aviation industry in 2004 c) Aviation boasts high occupancy rates of 65-70% – which is more than double those of road and rail transportation. See CASM/ RASM figures and compare 6/n