News & Articles

Are you a parent?

Are you a parent company?

Would someone please tell me the difference between the two?

What is a subsidiary?

Would that be akin to a brother, a sister, a cousin?

From what I can tell a parent company generally doesn’t produce anything you can hold in your hand. It has money, or debt, lots of it, that it can leverage or borrow to the real nuts and bolts company, the one that produces something you can hold in your hand. 

It appears as though companies grow successful by producing things that people can hold in their hands but at some point, a turning point, the producer itself agrees to be purchased or adopted and a parent-child relationship is formed. Stockholders seem happy at this point but employees generally don’t. They know that to pay the money back for the sale is going to mean a loss of jobs.

The jobs are gone but somebody is making money during the transaction.

It always happens.

You can now see why I chose not to be an economist or a business analyst of any kind.

I just don’t get the program.

I do have one of those dumb questions.

Where do the parent companies get all their money in the first place, you know, to buy that first company when they don’t make anything that can make money?

I know, I know. Investors appear with hopeful looks on their faces and dollars in their pockets, betting that more dollars will grow out of their investment. It’s so simple. So egalitarian.

Buy. Buy. Buy. Sell. Sell. Sell.

But it’s all about the money. Forget the people. Forget the employees. The money must grow at all costs. 

I’m going to get Broderick Crawford on that one. You remember Broderick Crawford, the guy that played Huey Long in the 1950s movie All the King’s Men. He was also the tough cop in Highway Patrol, that old TV show from the 1950s and early 1960s. He sure wouldn’t let Eddie Haskell tip over any outhouses back in those days.

He’s long gone now but he’d take those guys with all the money outside and do the mambo on them. He’d get to the bottom of it all for me.    

I recently read that the parent company of American Airlines wasn’t going to accept any more excuses from its petulant financial airline child and would file for bankruptcy in an effort to shed debt, cut labor costs and find a way back to profitability.

Apparently American Airlines had managed to avoid filing for bankruptcy since 2003 when it obtained major concessions from its labor groups, including lower pay for pilots. Contract talks have been going on since 2008 and finally hit the wall a few weeks back when the pilots refused to agree to a vote on the latest proposal.

Bankruptcy it is then.

The head of parent company AMR will take over as CEO of the airline, which seems to me a move into the penalty box for the poor guy. He’s a millionaire, yes, and will be paid handsomely for his new job but he was the head honcho of the whole shebang and now he’s got to go rescue the bad child from the debt wolves.

In the meantime, the former head of the airline has decided to retire and take a job in the private equity business.

Sounds about right.

He’ll be paid handsomely as well.

News reports said that AMR had $24.7 billion in assets and $29.6 billion in debt. Shareholders must have been ready to rumble at some point, let alone the creditors and bondholders. Still, folks in the corporate offices seemed to get their pay right on schedule so who’s to blame for the demise of an airline?

It appears as though American had higher labor and operating costs but it was the only major carrier left to do its own maintenance at union wages. It’s fleet was older and burned more fuel than its competitors which appears to have been a calculated choice, to put off capitalizing the fleet to keep short term profits coming in until the inevitable fiscal crash landing occurred.

The bankruptcy seems to offer investors a glimmer of hope that the airline can survive or end up in a merger with another of the large carriers which could offer a nice payout. That sounds about right, too. And the news spurred the usual signs of hopefulness on Wall Street as the company’s stock shot up pretty quickly.

Too big to fail it sounds like to me.

Except for the employees who lose their jobs after the smoke clears.