The debt burden is why American is the airline with the greatest risk of not paying back its unsecured creditors. Now it’s precisely that borrowed money that’s the problem, rather than the buy backs per se. They earned lower revenues for their flying ( having chased away their frequent customers) and had much greater capital expenses.

He turned American Airlines into a financing company that flew planes.īefore the Covid crisis American was financially underperforming the industry. and Parker explains it as being because interest rates were low. They were in effect buying back their stock with borrowed money. They were borrowing money and giving cash to stockholders.

He says they borrowed for the aircraft “because it was really efficient borrowing.”ĭespite profits, though, American Airlines had negative free cash flow. He then suggests they made billions of dollars in profit, and invested heavily in the company from aircraft to facilities, and then they had money left and bought back stock.

Parker answering the pilot by explaining his September 2017 claim that American Airlines would never lose money again, saying that he wasn’t foreseeing an event as severe as what they’re experiencing, but suggested that their financial decisions made sense against the backdrop he expected – one in which they’d even still make money in a crisis like the Great Recession (he doesn’t explain why, but it’s the credit card revenue not the flying). But American Airlines become as much financing instrument as airline, borrowing billions of dollars while buying back billions in stock.

They’re actually good for society – they take money from unproductive businesses without an opportunity to invest for a strong return, and make the money available for investors to put to better use.

At a macro level stock buybacks aren’t different from dividends, just more tax-efficient.

Now they’re facing over $40 billion in debt and looking for a second government bailout this year.Īt an internal Crew News session at the end of last week, a pilot asked the airline’s CEO Doug Parker if the airline is able to claw its way back, whether he’d change the way the airline is run – paying down debt instead of buying stock? After taking over at American Airlines, management spent $12.4 billion buying back stock over a six year period at an average price of $39.76 per share.

What is back stock