Airlines prepare for a C(r)ASH landing – paying the price for cash mismanagement

If ever there was a need for companies to have a little extra cash on hand, it’s now. But for several big airlines, the flight to cash has been canceled…

United, American, Southwest, Delta, and others spent 96% of their free cash flow over the last 10 years on stock buybacks. That didn’t leave much for their rainy-day funds, and now it’s raining passenger cancellations.

In PriSim’s business simulation classes, competing teams decide how they will deploy their cash: re-invest in the company; pay dividends; repurchase shares; or continue to hold it as cash (say, for a rainy day…). As in the real world, the optimal balance is a moving target – except that you always need enough left over to pay the bills and to weather the inevitable storms.

Grab your umbrella because the storm is here, and it’s raining bailouts and tax-breaks for the airlines. What’s next – trains and automobiles? Actually, yes. The BBC reported that train operators in the UK are in bailout talks with the government, and U.S. companies across several industries are receiving billions in bailouts (including Tennessee whiskey distillers).