Stock buybacks in crosshairs amid airlines' cries for lifelines

Critics say aid should come with restrictions on share buybacks, characterized as 'symbol of corporate excess'

Stock buybacks in crosshairs amid airlines' cries for lifelines

As governments around the world go from issuing travel advisories to announcing outright bans in the fight against coronavirus, the airline industry has been hit hard, with companies being forced to variously cut executive pay, lay off staff, and ground fleets. In the U.S., airline companies have asked for more than US$50 billion in government aid — and leaders want to tie a big string to that lifeline.

“President Trump has joined Democratic lawmakers demanding corporate aid include new restrictions on the stock buybacks that executives use to support the value of their shares,” reported the Wall Street Journal.

The call for such limitations comes after what the Journal described as “a yearslong campaign … to vilify the share buyback as a symbol of a corporate excess and a broken economy” run by progressive and populist politicians as well as academics.

Critics argue that in buying back stock, companies have prioritized increasing their share price — to the disproportionate benefit of shareholders and executives — over prudence. According to a report in Barrons, Delta Airlines bought back around US$2 billion of stock in 2019, and some US$11 billion since 2013. American Airlines, meanwhile, has reportedly bought back approximately US$12.4 billion since 2014.

Had the two airlines banked their ample profits from previous years instead of repurchasing shares, some critics say, both would have much more capital to spare and would be in a better position to weather the current crisis.

Other arguments have been advanced against buybacks more widely, including the suggestion that they waste company cash that should be reinvested in equipment or worker compensation.

“You can’t take a billion dollars of the money and just buy back your stock and increase the value,” Trump said at a Saturday briefing of its coronavirus task force, as per the Journal.

The comment echoed one from former Vice President Joe Biden, who said companies getting federal money would “have to focus on making sure that any aid they get does not go to buying back their stock.”

Not everyone’s a fan of such limits. In a commentary published by the Journal, Trend Macrolytics CIO Donald L. Luskin and Hynes Capital CEO Chris Hynes argued that buybacks offer a flexible way to return value to shareholders: they can either get cash by selling some shares, or hold on to their shares.

“Paying money out to shareholders frees them to reinvest in new companies with big growth ideas,” the two added. “This is the best way to promote growth for the economy as a whole.”


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