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With stock markets cratering and the world’s airlines tumbling into their deepest crisis ever amid the novel coronavirus pandemic, Boeing Co. got right to the point last week: The U.S. aerospace industry would need a $60 billion bailout. It was quite a comedown for a plane maker used to calling the shots as one-half of a lucrative duopoly with Europe’s Airbus SE. Little more than a year ago, Boeing was the most valuable U.S. industrial company, with a market capitalization of about $249 billion. By March 24 about $175 billion of that had been wiped out, with Boeing ranking last in stock returns on the Dow Jones Industrial Average.
That stunning loss in value notwithstanding, not all at Boeing were happy about its appeal to Washington. On March 16 board member Nikki Haley resigned in protest over the move. “I cannot support a move to lean on the federal government for a stimulus or bailout that prioritizes our company over others and relies on taxpayers to guarantee our financial position,” said Haley, the former U.S. ambassador to the United Nations under President Trump and a potential White House contender in 2024.
Whether Haley likes it or not, companies from cruise lines to casinos to movie theaters have been lining up for federal aid as Congress gets ready to pump about $2 trillion in stimulus into the collapsing U.S. economy. Hotel companies have asked for $150 billion for themselves and their suppliers. Airport operators say they need $10 billion. The Native American gaming industry is jockeying for $18 billion. And the list goes on and on.
Even industries that were from the beginning clearly on track to receive help from congressional moneymen didn’t just politely take the gravy and quietly move on. Airlines poised to win $58 billion in loan guarantees under a plan drawn up by Senate Republicans, for example, said the assistance wasn’t enough—they said they needed cash.
“Unleash the bailout kraken,” aerospace analyst Rob Stallard says of the $2 trillion package.
One thing airlines have going for them in this feeding frenzy is that, after years of industry consolidation, American Airlines, Delta Air Lines, and United Airlines are so integral to the nation’s transportation infrastructure that they’re widely considered too big to fail. The same goes for Boeing, which sits at the apex of an industry that, according to the company, includes 17,000 suppliers and supports 2.5 million jobs. Even allowing for a little exaggeration, the point about the company’s importance remains. “I’m not sure that Boeing necessarily needs a bailout as much as they need help making sure their supply chain stays intact,” says George Ferguson, an analyst at Bloomberg Intelligence. “They’ve got a decent war chest, but they just don’t know how long this is going to drag on.”
As stimulus plans took shape in Washington, Boeing positioned itself as the advocate for thousands of smaller aerospace manufacturers—a move that rankled some would-be beneficiaries, says analyst Ken Herbert of Canaccord Genuity. Even so, the company was best positioned to know where the greatest risks lie among the swath of companies that account for 20% of all U.S. manufacturing jobs.
The plane maker wouldn’t say how much of the $60 billion it would take for itself, pointing out instead that 70¢ of every dollar it receives flows through to a base of mostly U.S. suppliers.
While U.S. airlines battle for government grants to bolster their rapidly dwindling cash, Boeing has a cushion of $15 billion to get it through the next few months. Its request was for an “injection of liquidity and a reopening of the credit markets” for Boeing and its suppliers, Chief Executive Officer David Calhoun told CNBC. “The simpler, the shorter term in nature, the better.” The company opposed revisiting the types of assistance conditions imposed after the 2008 financial crisis, when the U.S. government took equity stakes as a condition of aid, he said.
The notion that government financial help for businesses should come without a lot of strings attached is already facing resistance. That’s especially true for Boeing, which is seeking taxpayer largesse after spending about $40 billion on stock buybacks in the past decade. The company’s reputation has also been hit by a year of devastating revelations about its bestselling jet, the 737 Max, which has been grounded since March 2019 following two deadly crashes that killed 346 people.
Government probes of the Max have thrown a spotlight on Boeing’s behavior, including one memorable exchange in which a company pilot told a colleague that the Max had been “designed by clowns, who in turn are supervised by monkeys.” The debacle forced out CEO Dennis Muilenburg in December, to be replaced by Calhoun, a longtime board member.
After spending billions buying back its stock, enriching big investors, the company “is trying to take Congress hostage by demanding $60 billion in a no-strings-attached, taxpayer-funded bailout,” says Sarah Miller, executive director of the American Economic Liberties Project, which opposes Boeing aid. “Congress ought to refuse this obscene attempt at blackmail.”
Yet even after Boeing’s missteps on the Max, the company still symbolizes American industrial might as China and Russia sharpen their efforts to take on the Boeing-Airbus duopoly. The manufacturer is traditionally among the largest U.S. exporters, the nation’s only company able to build large jetliners, and a crucial Pentagon partner as the No. 2 defense contractor. That’s why Washington is likely to loosen the purse strings while Boeing’s airline customers are unable to keep shoveling money its way. “A private-sector company is not going to spend its own money to build jets when there’s no end market for them,” says Richard Aboulafia, an analyst at Teal Group. “Either they lay off everybody, and you have a huge blow to the U.S. and the world economy because Airbus will do the same, or they get support for building jets. Tough choice.”
Still, Calhoun acknowledged on CNBC that it would be inappropriate to plow government aid into buybacks. “I do think the environment changes here going forward for the aviation industry,” he said, while sidestepping a question about whether the billions Boeing spent on its own shares was a mistake. Given the risk of future crises, “I think there will be a reassessment of what balance sheets need to look like, not unlike the banks post-’08, ’09.” —With Brendan Case
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