• Market Crumbs

Everyone Wants A Bailout

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As the coronavirus has ripped apart the global economy in the span of a few short months, it has revealed which industries weren't prepared financially to weather an unexpected crisis. While some of the industries that have been affected consist largely of small businesses—such as the restaurant industry, others—such as the airline industry, used free cash flow and debt to repurchase shares or pay dividends.

In light of the troubles facing many of these industries, this week has seen a slew of public requests for government assistance. Those who have asked for assistance are Airlines for America, the American Hotel and Lodging Association, the National Restaurant Association, the National Association of Theater Owners, the American Public Transportation Association, as well as New York's MTA and Boeing.

Airlines for America, which represents nine U.S.-based airlines, is seeking $50 billion in aid from the U.S. government. Delta Air Lines, American Airlines, United Airlines, Southwest Airlines and Alaska Airlines have spent nearly as much—a combined $44.9 billion, on share repurchases and dividends over the last five years. At the same time, nearly $750 million has been paid to airline executives over the same period.

"This is a today problem, not a tomorrow problem. It requires urgent action," said Airlines for America president Nicholas Calio.

The American Hotel and Lodging Association is seeking $150 billion in aid, with $100 billion going towards retaining workers and the remainder to service debt. The association argues without the aid, hotels across the country could be forced to close.

"The coronavirus has already had a more severe economic impact on the hotel industry than Sept. 11 and the 2008 recession combined," said the American Hotel and Lodging Association CEO Chip Rogers.

The National Restaurant Association, which represents many smaller businesses as opposed to publicly traded airlines and hotels, is seeking a $145 billion recovery fund from the U.S. Treasury Department. They're predicting 5 million to 7 million jobs in the restaurant industry will be lost if restaurants remain closed for three months. The The National Restaurant Association is also forecasting lost sales of $225 billion over the next three months.

"Without aggressive and immediate action from the federal government, many restaurants that are a staple of local communities will simply never resume service," said National Restaurant Association vice president of public affairs Sean Kennedy.

As for the other groups previously mentioned, the National Association of Theater Owners has requested an undefined amount of aid for theater employees, while also drawing on $1 million in reserves to assist them. The American Public Transportation Association is seeking $12.9 billion in aid, predicting the coronavirus will cost $6 billion in lost fare over the next six months. The MTA is seeking $4 billion in aid as subway and commuter rail traffic dropped 60% and up to 90%, respectively, from the same period a year ago earlier this week.

Lastly, Boeing, which repurchased more than $100 billion in stock since 2013, supports at least $60 billion in aid for the aerospace industry. Following the company's 737 MAX disaster, Boeing's ability to survive appears to be increasingly linked to its ability to receive a bailout.

The implications of these bailouts remains to be seen. As Market Crumbs wrote the other day, it could very well lead to the return of Occupy Wall Street or a similar movement. Given the levels of share buybacks and executive compensation for many of these troubled companies, it will also likely lead to increased scrutiny of both. U.S. President Donald Trump even said the government would consider taking a stake in companies that request bailouts. While these are just a few of the recent examples of requests for government assistance, more are likely to come in the weeks ahead as the economy grinds to a halt.

Leftover Crumbs

  • Americans are spending on coronavirus. As of March 13, 63% of Americans have shopped for essentials as a result of the coronavirus, according to LendingTree. The survey found the average American spent $178.44 on items such as food, cleaning items, medications and alcohol. Millennials spent an average of $195.20, $44.30 more than baby boomers. In a sign of how the wealth disparity affects people's ability to prepare for these types of circumstances, those earning more than $100,000 spent an average of $219.90 compared to $153.40 for those earning less than $25,000.

  • Walmart is now opening early for seniors. Following in the footsteps of Dollar General, Walmart also announced it will offer special shopping hours for seniors. From March 24 through April 28, customers 60 and over will be able to enter the store one hour before other customers. Walmart also announced it will limit purchases of items such as paper products, milk, eggs, cleaning supplies, hand sanitizer, water, diapers, baby formula and baby food. "Our associates have been nothing short of heroic in their commitment to serve customers, stock shelves as quickly as possible and keep their stores clean," said Walmart COO Dacona Smith.

  • Cash isn't trash after all. A couple of months after saying "cash is trash," before markets entered a bear market at unprecedented speed, Bridgewater Associates founder Ray Dalio said his fund is down up to 20%. "We’re down ... somewhere in the vicinity of 10% to 20% kind of decline," Dalio said. "We missed that, you know, we’re kicking ourselves for missing that move. ... What happened was it didn’t come from the usual places, it came from not the usual ways that downturns come." Dalio estimates U.S. corporations could lose $4 trillion as a result of the coronavirus, saying "a lot of people are going to be broke."

  • Ford is cutting costs. In light of the recent production halt, Ford has decided to make moves to preserve cash amidst the fallout from the coronavirus. Ford is drawing $15.4 billion from two credit lines, as well as cutting its dividend. The 15 cents per share dividend will save Ford $2.4 billion per year. "Like we did in the Great Recession, Ford is managing through the coronavirus crisis in a way that safeguards our business, our workforce, our customers and our dealers during this vital period," Ford CEO Jim Hackett said.

  • They don't want to make your coffee right now. Employees at Starbucks have created a petition requesting management closes all of the company's locations to prevent exposure to the coronavirus. The petition has already received more than 25,000 signatures. "Most Starbucks locations are strategically placed near hospitals and schools/universities," the petition read. "Although most schools have closed, most hospitals have not, and will not close. While Starbucks has put new policies into play, that doesn’t mitigate the entire risk of catching the virus." Some Starbucks employees are not happy that corporate employees have worked from home while they still have to serve customers.