Originally Posted by
Bucking Bar
Well stated Carl.
Giving cash to investors reduces the capital in the business.
If there were any way to turn that money into MORE MONEY, then that way would be better than throwing cash out the window.
If you will recall, Leo Mullin did a big stock buy back. The value of those shares were eventually nothing. A complete and absolute waste of money.
As labor, my preferred use for cash is growing the business in a profitable and sustainable way. The dividend is a sign we are out of ideas.
While I tend to agree with this, just to play devil's advocate (I've heard this arguement and wasn't 100% sure how to refute it):
Getting to "investment grade" status (whatever that means, let's assume we are somewhat successful in doing that because of this buyback/dividend, etc) will get us better financing terms and other deals and save us as much or more than we "spend" on it. It will also enable DL to buy all or part of another airline(s) much cheaper relatively speaking. Basically, what T said above. I'm not discounting all of it, but I am highly skeptical that we will get 1B+ hopefull return from the guaranteed 1B outlay.
Again, I can't really wrap my head around that, because can we ever really save more in better financing rates because of this than we would simply paying down that much more debt in the first place? Are we leaving revenue on the table with our inferior/inadequate widebody fleet that we could bolster with this money instead, generating revenue?
From where I see it, best case this is a per merger paper shuffle if it plays out exactly as scripted. Worst case we will be down a billion bucks permanantly from where we could have been if we didn't do this. Woudn't an extra billion in reduced debt (6 instead of 7B?) and/or a more competitive widebody fleet and/or a superior product do more to make us "investment grade" than a scheme to lump in individual investors with pre programmed sector ETF's linked to other airlines, oil, the DOW, etc and throw money at all of them?
Also, as improved as our product has gotten, we need to do more work than we are doing or even have imminent plans for. I can see us succeeding in spite of this plan, but not because of it in any real way. What am I missing?
10B was supposed to be some magic debt number that triggered epic deals on financing and whatnot. OK, we are headed there, and supposedly down to 7. So lower is better, isn't 6B better than 7B?
Then it gets into the insane realm of LBO schenanagans, which I really don't even see how that junk is even legal. In any case, does buying back shares reduce our exposure to hostile takeovers and all that boiler room tomfoolery?