Bailouts - Then (Financial Sector) vs Now (Airline Industry)

I recently had a few clients inquire about whether an investment in the airline industry (either broadly or in specific companies) was a good idea given their recent steep decline. While I cannot comment on my recommendation as it is specific to each of their individual situations, I thought a useful endeavor would be a quick analysis of how the financial sector performed during the Great Recession.

The financial sector received assistance through the Emergency Economic Stabilization Act of 2008. More specifically, that Act created the Troubled Asset Relief Tarp (TARP), funded with $700 billion to purchase toxic assets from banks. Similarly, the airline industry received $60 billion this week with the passage of the Coronavirus Aid, Relief, and Economic Security Act.

Side note - in a prior life I worked in the airline industry, and still have many ties to it today. Below is a pic from two years ago when I was working closely with Merlin One Aircraft - a Part 135 charter operator in San Antonio. I feel for all of my friends in the industry and hope a return to normalcy arrives soon.

This is in no way a recommendation to buy any particular security. That would depend on your specific situation and how such a purchase would fit into your overall plan.

What follows is a comparison of the Airline Industry (currently impacted) to the Financial sector (impacted heavily during the Great Recession in 2008). There is also a comparison to broader, small-cap companies. In order of width (i.e. the number of companies in each), the small-cap has the most, followed by the financial sector, and then the airline industry.

The financial sector after being hit so hard in 2008 is not as big a part of our economy today. Its legs were cut out from under it, and it never fully recovered for a variety of reasons.

The peculiar thing is that in 2008 small caps experienced 72% of the decline as compared to the financial sector (i.e. 59% decline in small caps / 81% decline in the financial sector). During this most recent coronavirus impact, small caps have been affected almost identically - experiencing 69% of the decline as the airline sector (i.e. 36% / 52%).

US Small Cap Equities defined as Vanguard Small-Cap Index ETF (VB)
Financial Sector defined as SPDR Financial Sector ETF (XLF)
Airline Industry defined as US Global Jets ETF (JETS)


DISCLOSURE: This material has been prepared or is distributed solely for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Any opinions, recommendations, and assumptions included in this presentation are based upon current market conditions, reflect our judgment as of the date of this presentation, and are subject to change. Past performance is no guarantee of future results. All investments involve risk including the loss of principal. All material presented is compiled from sources believed to be reliable, but accuracy cannot be guaranteed and ComposedPro makes no representation as to its accuracy or completeness. Securities highlighted or discussed in this communication are mentioned for illustrative purposes only and are not a recommendation for these securities.