Earlier this month, Airlines for America,
a trade group representing the major US airlines,
asked the federal government
for $50 billion in assistance
"to protect and preserve the 750,000 jobs
of hardworking men and women
who are directly employed by U.S. airlines."
This set up a heated showdown.
There's the industry, which says
it's in desperate need of financial help,
and then there are elected officials and activists,
who say the airlines would not be in this position
if they did not spend so much of their money
on stock buybacks,
which a lot of people see as the companies
lining the pockets of shareholders over all else.
Buybacks are often used as a way
to boost a company's stock price.
The repurchases shrink shares outstanding,
which increases the value of the remaining units.
They're frequently viewed as a signal from management
that the stock is attractively priced.
So, we're going to take a look at
the airlines' own data to help explain
why people are so mad about this bailout.
Let's start with American Airlines.
It's the biggest airline in the US
and reported having almost 134,000 employees in 2019.
Let's take a moment here to watch the amount
American paid in salary, wages, and benefits
grow over the last 10 years.
Now, it dips a little in 2013,
but let's not focus on that.
Instead, take a look at the end point here.
In 2019, American reported paying all of its employees
a grand total of $12.6 billion.
Now let's add another line.
This is the amount American spent
on its share-buyback program,
which just means money used
to buy back its own stock.
It's a move that financially engineers share-price gains,
which enriches shareholders.
This didn't start happening until 2014,
when the company spent just over $1 billion on its stock.
Its buyback program shot up for the next couple of years
before coming back down and staying around
the $1 billion mark.
So, we've got a billion here,
almost $4 billion here,
$4.5 billion here,
add this, and this, carry the one,
and if you add it all up,
American has spent $12.9 billion
over the last six years on its own stock.
People are mad because $12.6 billion
is what it cost to pay the employees' salaries
for an entire year,
and if you add up everything on this buyback line,
it surpasses that amount.
And while stock buybacks are fairly common,
there are some companies that do have
large emergency funds.
Apple, a company that was on
the brink of insolvency in the '90s,
is famous for having a ton of cash on hand.
As of January, the company had more
than $200 billion in the bank.
Call it a rainy-day fund,
call it a possible Netflix acquisition,
the company has built up one giant emergency fund.
This might not be the case for the airlines, though.
That was American.
Let's look at Delta.
It's the second-biggest airline
and has about 91,000 full-time employees,
whose wages, benefits, and everything else
added up to just under $ll.25 billion in 2019.
Now, let's look at Delta's buyback program.
Didn't exist in the beginning of the decade,
but in 2013, it's $250 million in the annual report.
A year later, it's more than a billion.
2, 2.6, all the way through to the end of 2019.
Over the past seven years,
Delta spent just under $11.5 billion
buying back its own stock.
That's almost the exact same amount it spent paying
all of its employees' salaries and benefits in 2019.
Let's do one final airline, United.
On March 20, the airline sent out a letter
saying it had already taken drastic measures
due to the downturn in travel
and would have to reduce payroll
to match a 60% cutting capacity
if Congress didn't act soon.
The airline reported 96,000 employees
at the end of 2019.
If we take a look at the last 10 years of its payroll,
we can see that in 2019,
United paid out about $12 billion
in salaries, benefits, and other related items.
Let's bring on United's buyback program.
This one began in 2014 at $252 million.
The following year, it's more than a billion.
It crosses $2 billion in 2016,
comes back down a bit,
and in 2019, it's about $1.6 billion.
The total amount spent on buybacks
for that five-year period is $8.8 billion.
That's about 75% of the entire amount
spent on wages and benefits for all of 2019.
Now, of the 750,000 employees
Airlines for America says it represents,
these three airlines account
for about 320,000 of them,
and collectively they would need about
$36 billion to pay them for an entire year,
and collectively over the last seven years,
they've spent about $33.3 billion
buying back their own stock.
The stimulus bill has about $60 billion
set aside for the airlines to be able to
pay their debts, pay their employees,
and basically keep the lights on,
but the buyback numbers are what really dominated
the talks of any help for the airlines.
So, people are saying any airline
that is helped by federal funds, aka taxpayer money,
should have various conditions attached,
like not being able to buy back stock
for a certain period of time.
And the no buybacks became a major point
of contention in any talk of federal help.
Many airlines have spent the last decade
doing things to increase profits
at the cost of passenger comfort,
like decreasing legroom to add more seats
and increasing checked-bag fees.
Those increased profits were in part
used to buy back stock,
and now the airlines are asking those same passengers
with less legroom and $50 checked-bag fees
to keep them afloat.
The no-buybacks demand worked.
The loans and grants the stimulus bill
has for the airlines
does have caveats that it can't be used
for buyback programs,
and the bill requires any company receiving assistance
to freeze anyone's pay who is receiving
more than $425,000 a year,
meaning no large increases for executives like CEOs.
We reached out to the airlines for comment.
American Airlines told us it had invested
$20 billion in wages and benefits,
while returning $13.5 billion
to owners and stakeholders.
The airline also said,
"these are extraordinary circumstances.
Travel restrictions and the downturn in demand
for commercial air transportation
has been swift and dramatic."
Delta told us it "invested
billions of dollars back in our business,
improved the customer experience
in the air and on the ground,
achieved an investment grade balance sheet
by paying down debt and funding our pension,
with the remainder returned to our shareholders
through buybacks and dividends."
United said in a statement it had "the highest growth
in profit sharing for our workers last year -
all of which far exceeds our share repurchases"
and that it had suspended
its share-repurchase program last month.
Now, the airlines might not have just
put this money in the bank if they didn't do buybacks.
The money could've been used for R&D, machinery,
reinvestment, buying another company,
pretty much anything.
And the downturn caused by the coronavirus
is not the airlines' fault,
but the speed at which they were affected
might make any CEO start to put away
a bigger emergency fund, just in case.