Exactly three years ago United Airlines (NASDAQ:UAL) violently removed a passenger from an overbooked flight, dragging him through the plane’s aisle while the man was screaming in protest. Blood was coming out of the man’s mouth. I embedded the video below. Was it that passenger’s fault that United Airlines sold more tickets than the number of seats it had?
It was a horrific event. Airlines remove tens of thousands of passengers every year from overbooked flights.
Three years after that incident, United Airlines wants an indirect bailout from that passenger. Airlines have been very profitable in recent years as they squeezed every possible dollar from their customers using methods that borderline on abuse. No, the profits weren’t put aside for a rainy day; they were returned to shareholders in the form of dividends and share buybacks. You might say, “that’s fine, they legally earned it and they should do whatever they want to do with it”. I agree with you. What I don’t agree with is a government bailout of the airline industry.
My blood is boiling. My taxes will have to pay for a $25 billion bailout of the airlines who would violently drag a passenger out even though he has a valid ticket. And what are we getting in return? A promise that they aren’t going to engage in any dividend payments or stock buybacks for a few years. And Donald Trump calls this the art of deal making?
And you wouldn’t believe who Donald Trump is really bailing out: Warren Buffett. At the beginning of this year Warren Buffett’s Berkshire Hathaway (NYSE:BRK-B) owned more than $1.2 billion in American Airlines (NASDAQ:AAL), more than $4 billion in Delta Airlines (DAL), and $2.9 billion in Southwest Airlines (NYSE:LUV). In recent days Buffett had to reveal that he sold 13 million shares of Delta and 2.3 million shares of Southwest Airlines because he owned more than 10% of these airlines (he is a corporate insider of these two companies).
Warren Buffett isn’t a gullible small investor who doesn’t understand what he is getting into. “Investors have poured their money into airlines… for 100 years with terrible results. …It’s been a death trap for investors,” said Buffett in his 2013 annual meeting. And what did he do as a corporate insider and large shareholder of Delta Airlines and Southwest? He welcomed the dividend payments and share buybacks. Did he exert his influence as a legendary investor and a large shareholder to stop these airlines from making dividend payments and buy back their shares? No, even though he knew the economics of the airline industry is unpredictable and has always been for the past 100 years. When will Warren Buffett learn his lesson?
As a taxpayer and an investor I don’t want Donald Trump to bailout irresponsible CEOs and shareholders who’d cut any corner to fill their pockets. I work hard to avoid these companies and types of investments. We can’t reward their shareholders for irresponsible past behavior. A Fed survey showed that 40% of Americans don’t have enough savings to cover a $400 emergency. Now we are seeing that 40% of American corporations don’t have enough savings to cover a $400 emergency because they wasted tens of billions on dividend payments and buybacks.
Donald Trump shouldn’t issue any loans to the airline industry. If airlines don’t get any help from the taxpayers, would they be able to borrow any money from the banks? I doubt it. They will probably go bankrupt and the equity holders will probably be wiped out in bankruptcy court. This isn’t the first time airlines will be declaring bankruptcy. We should just hope that their shareholders (including Warren Buffett) learn a lesson this time. And if they want a bailout from the taxpayers, we can buy an equity stake in these airlines at a price that is 10% of their December 31st, 2019 closing prices.
Here is the litmus test. We should have required Donald Trump invest $1 billion of his personal fortune along with the taxpayers’ $25 bailout package. That’d make me sleep better at night knowing that Donald Trump made the best deal he could, because he invested his hard earned dollars (maybe not as hard earned as a regular Joe’s paycheck) along side taxpayers’ dollars.
Disclosure: None. This article is originally published at Insider Monkey.