Hustle Or Bust

March 22, 2020

To:  CEO’s of USA Airline Corporations

From:  One concerned US taxpayer, business owner, investor of private and public companies, husband, father and proud CITIZEN of USA. 

CC:  The Honorable Mitch McConnel

The Honorable Nancy Pelosi

The Honorable Charles Schumer

The Honorable Kevin McCarthy

Thank you for your letter sent to the esteemed CC line above dated March 21, 2020. 

https://www.airlines.org/wp-content/uploads/2020/03/Hill-Letter.pdf

I must say, it’s impressive when over 11 major American Corporation CEO’s can collectively get together and come up with a plan and speak with one voice.  It’s interesting when CEO’s turn from competitors to a collective union with one voice isn’t it?

In a country of over 300mm people we obviously can’t “unite” as quickly, but we can certainly move as fast as possible in the collective interest of all Americans.  I write this note with our Political leaders most in mind and hope that they simply say, “YES, I’d like you to answer these questions as well.”  So “We” can be substituted for The Honorable…..   

So here goes:

If we understand you correctly, in short, you are proposing the following:

The Government (also known as the Citizens of America, as taxpayers) is requested to provide the following:   

•  $29BB in “worker protection grants” where you say you will protect furloughs and work reductions through August 31, 2020.  Presumably since you have labeled this “Grants” there will be NO payback to the US Taxpayer on this portion.  Do we interpret this correctly? 
• Another $29BB in loans/or loan guarantees, and in exchange for that you promise:
  • Limits on executive compensation
  • Eliminating Stock Buybacks & Dividends for duration of the loan

Some questions, just related to the two buckets of money:

Grants

•  Since there’s no PAYBACK to the US taxpayer by a grant, would you consider this a “bailout?”  We obviously have this precedent in the USA of this action, most recently during the Financial crisis.  As you know, bailouts are highly divisive, and our country’s division is arguably as high as its ever been, for various reasons.  Is there a reason why half the money is presumably NOT to be paid back while the other half IS?    
• You say you are all committed to “no layoff or furloughs” through August 31,2020.  So a simple question:  What commitment is made (if any) on September 1, 2020 and beyond?  What are the factors that would cause you to layoff employees after August 31?  How extensive would layoffs be and under what financial conditions? 

Loan:

• “Limits” on executive compensation:  Can you be more specific?  Does that mean $0 bonus?  Zero stock options?  What about the multi millions made in stock options exercised over the past 5+ years, is that a case of “in the past so forget about that?” 
• Eliminating stock buybacks and dividends:  This seems pretty clear, but same question that we presume to know the answer:  The BILLIONS in stock buybacks, dividends already occurred, we assume that’s already done and forgotten, this is only from this point forward correct? 

Let me use, just as an example DELTA airlines as an example as the country’s largest Airline.  Please note that we don’t claim to be “financial masters” but when we pull up Yahoo Finance, it seems pretty simple to cite the following facts, at least as they are reported on your financial statements.  Yahoo shows 20016-20019

1. By any measure, it looks like the company has performed well during this time period, congrats!  Revenue from $39.6bb to $47bb, while EBITDA $8.9 to 9.2, and net income $4.3bb to $4.7bb
2. Interestingly, it looks like shareholders have done at least “OK” with the stock price going from $44 to $56 in addition to dividends.    
   1. Looks like the dividends given to shareholders = over $3.1BB
   1. Share Buybacks total over same time period:  $7.9bb.
3. CEO Compensation:  It looks like 2016-2019 (google search)  $12.5mm, $13.2, $14.9, 2019 can’t seem to find, assume $15mm plus or minus a couple mil? 
4. EMPLOYEES:  It was easy for us to see with a simple google search that Delta paid out to employees a record $1.6BB among 90,000 employees , which translated to a 16.7% payout per employee.  2018:  $1.3bb, $1.1bb, $1.5bb.   While profit sharing is one component of compensation (in addition to base salary, benefits, stock awards, etc.), there is no denying these amounts are substantial, and will be interesting to see how your peers compare. 
   1. NOTE TO the other 10 CEO’s:  We’d like to understand a comparable view of YOUR employee compensation practices, and we’d like to compare apples to apples across all of your companies.  Please work together and come to agreement as to how best make this comparison, presumably its not a hard view of how best to present your compensation results in totality that allows us to compare each of your 11 companies.  You may want to compare executive vs “all other” over the past few years, and relative to profits. 

Capital Allocation/ News

• Your share of the government assisted money?  Looks like Delta represents 18% of the airline industry, are you asking for more or less (or any) of this taxpayer aid? 
• Looks like Friday you announced you secured a $2.6bb credit facility AND you are suspending your share repurchase & dividends to program to preserve liquidity.  Your quoted as saying

“Maintaining ample liquidity during this crisis is critical to the essential service that Delta provides in America’s transportation infrastructure as well as the jobs of more than 90,000 Delta people across the country.”

Does this mean the credit facility and suspension of buy-backs and dividends is ENOUGH to see you through the crisis, or you need this government aid in ADDITION To actions already taken?  If you need government aid IN ADDITION to the capital secured and actions taken were you denied the additional $’s from the credit facility? 

Some general questions:

• Please share your individual pro forma cash flow scenarios and where the capital injections are being deployed, by when and under what assumptions (revenue, income etc.) by month.  Appoint one of your team members to add it all up 
•  What specifically is executive compensation going to look like at each company?  Please provide a list, by person for the top 50 people at your respective companies, 2016-2019 compensation by year and what you are proposing for 2020.   Please provide a narrative on changes (plus or minus) you plan on making per person.  So again, back to Delta CEO, if he were averaging $14mm per year for the past 3 years, if “limit” to executive compensation means “no change”, please document that.  If it’s an increase, document that as well, and what specific number.  If it’s a decrease, please document that too. 
• Are any of you 11 CEO’s responsible on any type of personal “recourse” level?  Said differently, have you personally guaranteed any debt your company has.  In other words, do you have any personal financial DOWNSIDE risk in your current situation where you would have to reach into your PERSONAL finances for any financial obligations the company has incurred? 

Last, a basic rhetorical question: 

Why have you chosen to be a PUBLIC company vs a private one? 

At its very essence, isn’t the fact that you have a “market” a pretty major benefit when it comes to raising capital?  Yahoo tells me that Delta’s average trading volume is 14mm shares being purchased and sold.  That seems to be a much more liquid, although admittedly an irrational judge of “market value.”  30 days ago, Delta was trading at $58 vs Friday’s close of $21.35, big decrease in value. 

But we need to ask you THIS question:

Why aren’t all of you public companies doing an addional stock market offering? 

Again, back to Delta as an example and some questions:

• Delta, if you repurchased $8bb of stock over the past 3 years, you repurchased those shares presumably at a range of $40-$58 per share correct?  You did that (presumably) because you thought the company would be worth more in the future and that was your best deployment of “excess cash” correct? 
• Assuming that answer is yes (or else why would you do it?), and Yahoo tells us you have 647mm shares outstanding, why couldn’t you raise say $3bb of capital by selling more shares?  If your stock price is trading at $21, more than HALF the price it was a mere 30 days ago, and WELL below the $8bb of capital you spent buying back your own shares, wouldn’t an offering of say $15 a share be enticing?  Wouldn’t that require you issue 200mm more shares, which dilutes your existing shareholders 24% if our math is right correct? 

So, CEO’s, please respond, as in the example above WHY are you not going to the capital markets, like in the case of Delta and issuing new stock offerings vs going to the US taxpayer.  Please tell us the answer is NOT shareholder dilution. 

Last, please provide, by company your capital allocation strategy, by providing your financial enterprise projections:  Income statement, balance sheet, Cash Flow over the duration of your requested loan period.  Please specifically highlight your anticipated capital allocation, how excess cash will be allocated, your respective debt ratios, employee compensation estimates.  Please put together at least 3 scenarios:  Worst case, most likely, best case.  This is basic under-writing requirements you would need to do in any capital/debt raise as you are aware.

Also, since 11 captains of industry are clearly working together and looking out for the health of your collective 750,000 jobs, which we appreciate, please spend a half day discussing the REST of the economy and what you would recommend we do for them. 

Please address PUBLICLY traded companies and what that should look like vs small businesses that do NOT have public equity markets at their disposal.  We would appreciate your view on how different the plan and recommendations for the rest of the economy would look vs what you are proposing for the airline industry.   

Note above the question related to PERSONAL RECOURSE or downside risk.  It is our assumption that the majority of small business owners have significant DOWNSIDE risk, not just the loss of upside that result from stock options not materializing.  When a small business personally guarantees a loan or lease on a building and then shut the doors, that is a different set of financial risks vs 5mm stock options that could be “under water.” 

Last, I assume some of the questions and information requested will leave each of you HIGHLY frustrated or upset.  That is understandable.  But like any good due diligence process that occurs among lending institutions or private investment/stock investment, having good sound information of what we are getting into is critical.  It just so happens to be that the lender is the US Taxpayer. 

All 11 of you were aligned on the “ask.”  We are excited to see IF all 11 of you will be aligned on the requested due diligence?

Much of this information is presumably readily available, so we’ll expect your answers within 3 days.  Should the group not wish to comply with the request or half of the members will “withdraw” please let us know that as well.  I’m sure you can all appreciate how $60bb should have some level that extends beyond a 2 page word document correct? 

I trust that the honorable group this letter was addressed too will do their job and at a minimum get answers to at LEAST these questions.  There are plenty that may be more important.  What I absolutely agree with is that speed is important, but facts and principles must be gathered to move quickly in a smart, unifying way.  What I also expect the HONORABLE group to do is to assemble the appropriate team that can evaluate the requested information, as it will be highly quantitative, financial and will likely require further questions. The information will be extensive but manageable to digest with the appropriate team.

CEO’s: I wish you all luck.  I hope that going forward we look at our collective actions over the past 5 years and say, “what would we do differently?” going forward.  I also hope we look at our actions in light of the world around us, small businesses, non-publicly traded companies, nonprofit, etc. 

Also, FOR THE RECORD:

I do NOT fault any CEO in any industry making $10mm+. I’m a believer in free markets, and every asset tends to find a “market price.” CEO’s and executive talent are competing in such a market. There are also markets for capital. Banks. Shareholders. Commodities. Emergency financing. Those markets tend to find the right price point and terms.

You all have fiduciary responsibilities to ALL of your stakeholders:  Employees, vendors, customers AND of course shareholders.  The HONORABLE group has responsibility to the US taxpayer.  I am confident they will get the right players around the table and do their job.

Sincerely,

One concerned US taxpayer, business owner, investor of private and public companies, husband, father and proud CITIZEN of USA. 

Mark Olivito (name is the LEAST important)