x

Travel

Unions Push Airlines to Promise They’ll Avoid Stock Buybacks

August 19, 2022

DALLAS — Labor unions are pressuring U.S. airlines not to buy back their own stock but instead spend the money on hiring more workers and fixing problems that caused widespread flight delays and cancellations this summer.

The unions said Thursday that the four largest U.S. airlines spent more than $39 billion on stock buybacks from 2014 through 2019 rather than making investments to help employees and passengers.

The airlines are currently barred from buying back their own shares as a condition of $54 billion in federal pandemic aid, but that prohibition ends after Sept. 30. Union officials worry that buybacks will come back now that most U.S. airlines have returned to profitability after huge losses in 2020 and 2021.

The unions, which represent pilots, flight attendants, mechanics, baggage handlers and other workers, launched a campaign and petition drive that portrays buyouts as a giveaway to Wall Street and a tool for airline executives to boost their own stock-based compensation.

“We paused the greed in aviation for a little while,” said Sara Nelson, president of the Association of Flight Attendants. She blamed “greed that ran rampant before COVID” with leaving airlines understaffed.

The unions asked airlines to pledge to forgo buybacks until until airlines fix their “operational meltdowns” and reach new labor contracts — unions are seeking substantial wage increases.

A union representative said Thursday that none of the airlines immediately agreed to the pledge.

The chief financial officer of American Airlines, Derek Kerr, said in a recent interview that buybacks are not on the table.

“There is no plan to do any share repurchases. All of our excess liquidity will go to pay off debt,” Kerr said. A spokesman said Thursday that is still American’s position.

United Airlines said that it is not currently seeking buybacks. “Our highest financial priorities right now are restoring our balance sheet and investing in our employees and customers,” a spokeswoman said.

Asked about share repurchases last month, Delta Air Lines CEO Ed Bastian did not answer directly because of the prohibition, but he said the airline has a responsibility to customers, employees, “and importantly to our owners.” A Delta spokesman said Thursday that the company has raised base pay 4% and made profit-sharing payments to employees.

A Southwest Airlines spokesman said only that the airline has not announced any plans for buybacks.

Airlines could be tempted to repurchase stock because the shares might appear cheap. The Arca index of airline stocks is down 21% this year and 41% since the start of 2020. Most U.S. airlines reported second-quarter profits, however, and revenue is surging on strong ticket sales.

Stock buybacks are a favorite target of unions and Democratic lawmakers, who often see them as widening inequality between workers and wealthier investors. The climate, health care and tax bill that President Joe Biden signed this week includes a new 1% excise tax on them beginning next year.

Corporations view buybacks as a way to reward shareholders by reducing the number of shares and making the remaining ones more valuable. Investors often prefer them over dividends, which are treated as ordinary income and taxed at up to 37%. If buybacks boost a stock’s value, investors who hold the shares long enough pay a lower capital-gains tax on the profit when they sell — no more than 20%.

“There is nothing inherently wrong with a buyback. It just gives shareholders a return on their investment,” said Charles Elson, founding director of a corporate-governance center at the University of Delaware.

Elson, however, said there are pitfalls. Companies might pay too much for the stock, wasting money. And executives with stock options benefit from buybacks but not from dividends, a problem that he said can be fixed by giving the executives restricted stock units instead of options.

Charles Tharp, a Boston University management professor who advises corporate boards on compensation, said that raising employee pay and buying back stock are separate decisions.

When companies approve buybacks, “it does look like I’m choosing to serve shareholders instead of employees,” he said, “but that assumes you would give the raise to employees if you didn’t buy back shares, which probably isn’t the case.”

Tharp said if companies believe they need to raise pay to be competitive, they will make that decision regardless of whether they buy back shares.

In 2020, the labor unions provided key support for giving taxpayer money to the airlines, which were warning they faced disaster from a plunge in travel during the early days of the pandemic. Union officials and Democratic lawmakers insisted that the aid be tied to a ban on buybacks and limits on executive compensation.

Airlines were barred from furloughing employees during the pandemic, but they were allowed to pay incentives that led tens of thousands of workers to quit. The airlines were understaffed when air travel bounced back this spring and summer, contributing to about 45,000 canceled flights and 472,000 delays since June 1.

 

RELATED

SPARTA – At the 2024 edition of the Athena International Olive Oil Competition (IOOC), 107 Greek olive oils won medals and 8 got special awards.

Top Stories

Columnists

A pregnant woman was driving in the HOV lane near Dallas.

General News

NEW YORK – Meropi Kyriacou, the new Principal of The Cathedral School in Manhattan, was honored as The National Herald’s Educator of the Year.

Video

1 of 2 Abducted Louisiana Children is Found Dead in Mississippi after Their Mother is Killed

JACKSON, Miss. (AP) — A Louisiana woman was found dead in her home Thursday, and her two young daughters were abducted and found hours later in Mississippi — one dead and the other alive, police said.

JERUSALEM  — Israel's military announced on Sunday that it would pause fighting throughout daytime hours along a route in southern Gaza to free up a backlog of humanitarian aid deliveries destined for desperate Palestinians enduring a humanitarian crisis sparked by the war, now in its ninth month.

WASHINGTON  — Donald Trump on Saturday night suggested President Joe Biden “should have to take a cognitive test," only to confuse who administered the test to him in the next sentence.

On the dawn of Monday, June 10, the day after the European Parliament elections, a different Europe appeared, with a furrowed and darkened face indicating that the cycle of prosperity and political stability has ended and another rather vicious cycle has begun, foreshadowing adventures in the political, social, and economic realm.

Today, I will talk about a food that I associate with summer, shellfish, as that is their ‘season’ in the Mediterranean.

Enter your email address to subscribe

Provide your email address to subscribe. For e.g. [email protected]

You may unsubscribe at any time using the link in our newsletter.