Boeing Seeks $60 Billion Bailout For U.S. Aerospace

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Boeing called for at least $60 billion in financial support for U.S. aerospace companies Tuesday as they struggle with a steep falloff in revenue amid the coronavirus pandemic

Photo: Depositphotos.com/miles_around

Any taxpayer-funded aid for Boeing is bound to raise criticism after a year of harsh scrutiny of its failures that led to two fatal crashes of its flagship airliner, the 737 MAX. Boeing stressed in a statement that financial support for the company would flow through to its suppliers and support the broader health of the U.S. aerospace industry. The statement didn’t specify how much of the $60 billion the company believes it needs.

“The long term outlook for the industry is still strong, but until global passenger traffic resumes to normal levels, these measures are needed to manage the pressure on the aviation sector and the economy as a whole,” Boeing said in the statement. 

The plane maker and its suppliers are facing a mounting financial crisis after Boeing halted production of the 737 MAX in January. Boeing burned through billions in cash as it produced roughly 400 models of the plane that it has been unable to deliver to customers due to the plane’s grounding by global regulators.

Their stress has been compounded by the sudden decline in business of their airline customers as coronavirus has spread worldwide, raising the specter that many carriers will delay delivery of planes, slowing Boeing’s recovery once the 737 MAX returns to service. Parts manufacturers also face the prospect of a sharp slowdown in aftermarket sales with airlines parking planes and deferring maintenance.

Earlier in the day, President Trump said at a press conference that support would be forthcoming. “I think we have to protect Boeing,” he said. “Obviously when the airlines aren't doing well then Boeing is not going to be doing well. So we'll be helping Boeing."

U.S. airlines on Monday called for a bailout of their own, to the tune of $50 billion in grants and loans for passenger carriers and $8 billion for cargo carriers.

Concern has been rising over the past week that Boeing may face a liquidity crisis, with its stock plummeting 44% over that span to close Tuesday at $124.14, its lowest point since 2016. The Chicago-based company disclosed in an SEC filing after the close of trading that it had fully drawn $13.8 billion from a line of credit it had arranged just last month. On Monday, Standard & Poor’s downgraded Boeing debt two notches to BBB from A-, citing a significantly worsened cash flow outlook over the next two years. The ratings agency now expects an outflow of $11 billion to $12 billion this year, down from a prior expectation of positive cash flow of $2 billion.

The government should provide sufficient liquidity to keep Boeing going, Robert Stallard, an analyst with Vertical Research Partners, said in a client note, but with total debt of $41 billion already, more loans will bring serious risks. “This could leave Boeing so encumbered with debt that it is unable to effectively compete,” he wrote.

Critics of the prospect of so much taxpayer money going to Boeing and the airlines have focused on the billions of dollars worth of share buybacks that they have made over the past decade, enriching executives and their shareholders.

The millions of jobs the companies support and their critical role in the economy likely make a bailout a foregone conclusion. Boeing stands at the apex of a pyramid of 17,000 aerospace firms that employ 2.5 million workers while U.S. airlines directly employ 75o,000. However, lawmakers and labor groups will seek to put conditions on the assistance.

Suspension of Boeing’s continued dividends to its shareholders could be one. That was not the case with the U.S. bank bailouts during the financial crisis. A dividend suspension would give Boeing an additional $4.7 billion to fund operations on an annualized basis. 

Sara Nelson, the president of the Association of Flight Attendants-CWA, vowed Monday that airlines wouldn’t make out as easy as the banks did in 2008.

“The airline industry didn’t cause the pandemic and money should come with significant conditions to help workers and keep planes flying, not enrich shareholders or pad executive bonuses,” she said on Twitter. “Airlines must commit to maintaining payroll. It means no bonuses, no buybacks, & no breaking union contracts in bankruptcy. Companies should commit to pay a min $15 wage and board seats for workers.”

Jeremy Bogaisky, Forbes Staff

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