Coronavirus rescue: Trump joins Democrats in opposing share buybacks
Less than a week ago, the American airline industry requested $ 50 billion in grants and loans the federal government to help it weather the travel collapse caused by the Coronavirus pandemic, and help it provide some financial security to the 750,000 workers in the industry.
As long as there’s bipartisan support for the idea that airlines – or, at least, airline workers – should receive some sort of bailout from the federal government, Democratic lawmakers and unions representing airline workers have warned that this bailout must come with conditions attached.
Any bailout of the airline industry, according to Association of Flight Attendants President Sara Nelson “should come with meaningful terms to help workers and fly planes, not to enrich shareholders or improve executive bonuses.”
Senator Elizabeth Warren (D-MA), meanwhile, has proposed eight ambitious restrictions to be placed on any company receiving a bailout, including a permanent ban on companies to buy back shares – that is, a rule that prevents a company from spending its excess profits to buy shares from its existing investors.
Buybacks can be a boon to business executives and other investors, as they tend to inflate the price of a share by reducing the number of shares of that share outstanding. However, they offer little benefit to workers or consumers.
While it still seems unlikely that a permanent buyout ban will be included in any business bailout, two recent developments suggest that temporary buyout restrictions will be placed on companies that receive federal bailouts.
On Saturday, the CEOs of 10 U.S. airlines and the head of Airlines for America, the industry’s trade group, signed a letter to the leaders of Congress. In it, they agreed to “eliminate stock buybacks during the life of the loans” and “eliminate stock dividends during the life of the loans” if the industry receives at least $ 29 billion in loans. or loan guarantees. Industry leaders have also agreed to “limits on executive compensation.”
President Donald Trump also announced his support for restrictions on redemptions at a press conference on Saturday afternoon. “I want the money to be used for workers and for companies to stay open, not for buyouts,” the president said, adding that he “strongly recommended a buyout exclusion.”
Although the negotiations on Congress Response “phase 3” While the economic fallout from the coronavirus remains unresolved, these developments suggest that certain limits on share buybacks are very likely to be included in the package.
Limiting these buybacks is a long-standing cause of many Congressional Democrats and their allies. More than a year ago, the senses. Chuck Schumer (D-NY) and Bernie Sanders (I-VT) posted an editorial in the New York Times claiming that “when more than 90% of corporate profits are spent on buyouts and dividends, there is cause for concern.”
The two senators proposed a bill that “would prohibit a company from buying back its own shares unless it invests in workers and communities first, including things like paying all workers at least 15%. $ an hour, provide seven days of paid sick leave and provide decent pensions. and more reliable health benefits. “
While such an ambitious proposal is unlikely to be included in coronavirus rescue legislation, it seems likely that there will be protections to ensure taxpayers don’t end up paying to inflate stock prices.