Do The Right Thing

The airline industry is presenting itself as a victim of circumstance, pleading for emergency bailouts because of an external crisis. But something else has been happening for six years beneath the surface. The Big 4 airlines spent $42 billion buying back their own stock while their actual operating performance deteriorated, all while their CEOs extracted massive personal wealth. The question isn't whether airlines deserve emergency support. It's whether we're about to bail out management teams that deliberately weakened their companies for personal gain.

• The numbers tell a specific story: Since 2014, the four major airlines poured more money into stock buybacks than they generated in free cash flow, meaning they borrowed to pay shareholders. During this same period, every operational metric declined: earnings, free cash flow, and operating cash flow all peaked in 2015 and fell steadily afterward.
• The CEOs became spectacularly wealthy while their companies grew fragile: Doug Parker at American sold $150 million worth of stock while his company was buying back $13 billion. During one 12-month stretch, he was selling between $4 million and $11 million per month in personal stock. None of these CEOs bought a single share in their own company using their own money.
• This wasn't accident or bad timing. The buybacks and debt increases were intentional strategy to prop up stock prices in the short term. Management compensation was explicitly tied to stock performance, creating a system where financial engineering looked better than operational excellence.
• The hedge funds sitting on 25% of these airlines made the same bet: They backed the stock buyback strategy because it inflated their holdings. Warren Buffett's Berkshire and Primecap Management are being presented as victims who deserve bailout protection, but they would do exactly this if positions were reversed.
• Now we face a choice about what a bailout actually means: Do we rescue the employees and the utility function these companies provide, or do we bail out the financial strategy that intentionally positioned these companies to fail? The answer determines whether we're solving a problem or rewarding the people who created it.