NJ Recalls

[gunfyter]

We are posting over $200 million in profits for the past couple years. IN ADDITION, we have paid down nearly half of $2 billion in debt in just 2 years. When that debt is paid off in about 2 or 3 more years, then that money (by my calculations close to $500 million/year) will then be moved from the 'debt repayment' column to the 'profit' column on top of the already $200 million in profit.

This is incorrect...

Profit is not substantially affected by paying off debt... one way or the other.

To demonstrate this consider the case where you applied 100% of your income to pay down your personal debt...

What was your income? Did it change by applying it to debt?

 

[imacdog]

I think you're confusing "profit" with "revenue".

 

[realityman]

Let's say NJA's yearly revenue is $300 million. And let's say NJA's operating expenses are $100 million. Also, NJA currently is paying $100 million every year to pay off money borrowed to buy planes. The other $100 million is profit.

Once the debt is paid off, then wouldn't they have $100 million in operating expenses, and the other $200 million is now all profit?

I realize this is a simplified version, but just trying to understand your points.

 

[notaNJApilot]

You do realize companies are in business to make a profit and not break even, right?
If you invest in the stock market would you enjoy 1% return on your investments?

 

[jetlag7]

You do realize companies are in business to make a profit and not break even, right?
If you invest in the stock market would you enjoy 1% return on your investments?

Let me guess.... you're a member of the "Who gives a damn about customers, the shareholders are King" crowd?

When you sacrifice delivering a quality product to your customers in exchange for shareholder ROI, things start to go downhill. Companies that embrace this twisted philosophy never remain in business for long.

 

[notaNJApilot]

Absolutely not. I do not see how increasing costs (pilot salaries, office salaries, etc.) will improve service. Some of those costs would be passed on to the customers, making our product unaffordable. We need to lower costs to keep the customers we have and attract new ones. When we get new customers, we'll need more aircraft, and more pilots to fly them.

I am a fan of profit sharing. I hope that gets negotiated into the contract.

 

[realityman]

You do realize companies are in business to make a profit and not break even, right?
If you invest in the stock market would you enjoy 1% return on your investments?

You do realize that I fly to make a living, not provide a great return to investors.

Keeping our clients happy will keep the business going. I could care less about how much ROI the investors get.

Profit sharing? Yeah, sounds great. Especially since we've NEVER seen our company try to hide profits from us (that was sarcasm).

 

[G4dude]

This is a good conversation! I believe NJA is the most expensive of all the players in our arena. That is of concern to me. I believe Unions, even a pretty good one like NJASAP, are not good for long term flexibility, productivity, and shareholders' return on investment. By the way, ROI is a REALLY BIG DEAL. The investors own the company. They want to make money. If we don't make them enough money in comparison to other companies and investments, the investors will take their money away from us and put it somewhere else.
Would I like a raise? Of course! Am I worried a pay raise would price us out of the marketplace? Yes. I have had eleven companies go out of business on me, so I am rather sensitive about these things. My job experiences don't mean I am right, but they do explain my bias against a higher cost business model, and my unease about unions, even one as reasonable as NJASAP.

 

[realityman]

G4, that's a reasonable reply. But let's use half my original example. Suppose we all get a $45000 raise. That is about $50 million for NJA. Do you really think that amount means a hill of beans to our costs? If fuel goes up $.15/gallon it will increase our costs by tens of millions of dollars. And yet no one blinks about it. The owners pay the (for them) small increase and continue on. But somehow a similar increase for increased compensation for us is going to cause us to shut down?

I am not suggesting we can just pile on massive increases in costs and it'll have no effect on the company. But I think reasonable increases for us (we can debate 'reasonable' some other time) won't cause the our owners, the company, or ROI any serious difficulty.

But hey, it's all just opinion anyway. It is a good discussion.
Gotta go!

 

[gunfyter]

Let's say NJA's yearly revenue is $300 million. And let's say NJA's operating expenses are $100 million. Also, NJA currently is paying $100 million every year to pay off money borrowed to buy planes. The other $100 million is profit.

Once the debt is paid off, then wouldn't they have $100 million in operating expenses, and the other $200 million is now all profit?

I realize this is a simplified version, but just trying to understand your points.

No. This is incorrect. Its now $200 M Positive cash flow... instead of $100M in positive cashflow. Thats a good thing.

But in your example there was a $200M profit before and after liquidating the debt. No change in profit by paying off debt.