Question

In recent corporate bailout by congress (Covid-19 crisis), as part of the package congress barred the recipient firms like airlines from stock buybacks in future. Explain why?( I want more 600 word with refrencess and citation )

Answer 1

Congress has proposed $ 50 billion of emergency aid for airlines ravaged by widespread cancellations amid the coronavirus pandemic. Major airlines are reeling from massive wave of cancellations as people stay home and governments around the world implement travel bans to curb the spread of coronavirus.

However, over the past decade, major airlines - including Delta Airlines, United Airlines and Southwest have used roughly 96 % of their available cash on stock buybacks. By reducing share count, these repurchases have pushed share prices higher. In the process, they have drawn criticism for how they boost shareholder returns without directly helping businesses. Hence, Congress had to bar these airlines from stock buyouts in future.

Some experts argue that these companies should have instead used these proceeds to build themselves financial cushion or address labor issues. Tim Wu, a Columbia University professor, targeted American Airlines saying that it could have stored up its cash reserves for a future crisis, knowing that airlines regularly cycle through booms and busts.

In return for the emergency loans, companies will face restrictions on stock buybacks and dividend increases.