Boeing Will Take Aid, Won’t Give Equity

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Days after Boeing publicly thanked the U.S. government for passing the CARES Act, CEO David Calhoun told Fox Business News that it would not avail itself of the direct grants if it means trading equity in the company. “If they attach too many things to it, of course you take a different course,” he said, referring to the grants to be available under CARES. Boeing’s CEO said there were other options for financial assistance as airline travel and manufacturing reel from the COVID-19 pandemic, and that the company would be on board for guaranteed loans that don’t require the government taking an equity share in the company. “I can only comment on what Boeing has said publicly, which is Boeing has said they have no intention of using the programs. That may change in the future,” Calhoun said. 

This comes days after Boeing issued a statement thanking the government for “working together to take swift bipartisan action to support the American economy, including the 2.5 million jobs and 17,000 suppliers that Boeing, the aerospace industry and the U.S. rely on to maintain our world leadership in commercial, defense and services. Boeing’s top priority is to protect our workforce and support our extensive supply chain, and the CARES Act will help provide adequate measures to help address the pandemic.”

Boeing’s factories in Washington state remain closed until at least mid-April, though that could change as the Trump administration has indicated that the COVID-19 restrictions are likely to stay in place throughout April. 

Meanwhile, Boeing got more bad news this week as the U.S. Air Force escalated another issue found to the beleaguered KC-46 tanker program to “Category 1 status,” or its highest level of concern. This time it’s fuel leakage, which was originally found in July of last year during tests. The USAF says that “the Air Force and Boeing are working together to determine the root cause and implement corrective actions. The KC-46 program office continues to monitor the entire KC-46 fleet and is enhancing acceptance testing of the fuel system to identify potential leaks at the factory where they can be repaired prior to delivery.” The Boeing 767-based KC-46 has had issues with its remote piloting of the fueling boom, interior cargo hooks that won’t stay locked and myriad other squawks. 

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24 COMMENTS

  1. Boeing is in no position to dictate terms of assistance.

    If they don’t want the government to take an equity position, then they can do a corporate bond issue to raise cash. They will discover that only junk bond traders and hedge funds will touch them – and only at interest rates that would shock a loan shark.

  2. My experience has been that when one asks for the use of other people’s money, there are always strings attached. I’m assuming that when Boeing borrows money from a bank or floats a bond issue in the market, they have to agree to certain conditions such as “you have to pay the money back with interest”.
    If Boeing doesn’t want to give an equity position to the taxpayers in exchange for their money, then that is their privilege to do so. The taxpayers are under no obligation to provide them that money without some guarantee of return; providing a “grant” under said circumstances (no equity for the funding source) is simply socializing the cost while privatizing the profit.

    • It’s not the tax payer handing Boeing the money, it’s a bunch of Washington bureaucrats handing out money that is not theirs. Boeing would not be beholden to the tax payer, Boeing would be indebted to Washington bureaucrats. The only one this deal is good for is Washington bureaucrats and Boeing top management.

  3. “If they attach too many things to it, of course you take a different course,”

    “I can only comment on what Boeing has said publicly, which is Boeing has said they have no intention of using the programs. That may change in the future,”

    Boeing got the right man for the job at the right time. Dave is a master of saying “basically yes, but generally no”. He is equally adept at sticking his finger in the air to measure the strength of political winds and direction they happening to be blowing. And finally, he does not care how ridiculous he looks. This is part of his job description and responsibilities as the new CEO to take Boeing through the MCAS debacle and now Covid-19 crisis. If there is anyone who will not let a crisis go to waste it is “Boeing Dave.”

    Meanwhile, back at the ranch:
    “working together to take swift bipartisan action to support the American economy, including the 2.5 million jobs and 17,000 suppliers that Boeing, the aerospace industry and the U.S. rely on to maintain our world leadership in commercial, defense and services. Boeing’s top priority is to protect our workforce and support our extensive supply chain, and the CARES Act will help provide adequate measures to help address the pandemic.”

    Translation: If there is money with no strings, we, Boeing are in. Boeing believes it is too big to fail. So, we are counting on you ” Daddy Federal Government” to take care of your prodigal child. Because our first priority is to protect our shareholders, ahem…excuse me…( Dave’s singular finger goes in the air for a political wind check, guess at which one it is)…protect our workforce and support our extensive supply chain with “Daddy’s” money. Let me know when the check is in the mail. ( Boeing Dave now smiles for the obligatory photo op)

  4. Okay folks, calm down. Boeing has a choice, take Washington’s money and cough up equity, or don’t. That’s their problem.
    What is far more concerning is the fuel leak issue and the other quality-control problems they are having with the KC-46. Yes, the -46 is a kind of “Franken-Tanker” but it is basically a 767 at heart. There can’t be that much new tech in a 767 that fuel leaks would be an issue. The issue has to be with quality of the work. Boeing has been having tons of quality control issues on the 46 and it doesn’t seem to be abating. Quality control is one of the first issues when you start getting “money people” running the show and not operators / engineers. Money people focus on stock price to the total disregard of all else. There is no denying that. Hurry, hurry, hurry… get more out the door with the least amount of cost possible… even if it takes endless shortcuts to do it, don’t worry about that little smudge, it’ll buff out later. See how good we are doing there Mr Stock Buyer? We are doing the work of at least 10 people with only 4! Aren’t we just wonderful? Buy, buy, buy our stock so the price goes up and my next bonus is assured.
    A little jaded sounding, yeah, probably, but still pretty much a fact. I flew classic 74 freighters for 16 years and loved them. They were solid and mechanically dependable, at least as far as the basic machine was concerned. No fuel leaks, no basis systems that wouldn’t work right, no debris in the fuel tanks, etc, etc. Boeing has sadly gone from a dependable engineering company to a Wall Street run debacle and joke.

    • I certainly agree David.

      I grew up in Detroit and am old enough to recall a similar scenario unfolding in the auto industry during the 1970s. Quality, workmanship, reliability went into free fall. Then came an unforeseen crisis (congress refused to extend emissions compliance deadlines) and the unprepared auto industry was overwhelmed by better products from Asia and Europe – never to recover their market share or valuations.

  5. David Calhoun knows Boeing does not need the CARES ACT because Boeing will rely on the Federal Reserve to do its dirty work.

    What is of real concern here is the $4.3 Trillion – in addition to the $2 Trillion CARES ACT -represented by the doubling of the Federal Reserve balance sheet, for the Fed to buy treasuries, Corporate bonds and old bicycles – pretty much anything investors and corporates want to sell – in order to prop up the fantasyland of good health in Corporate America, as we progress through this crisis.

    The tragedy here is that most Americans will not see, this Great American Corporate Socialism Theft taking place right under their noses until it is history.

    Having gutted Boeing’s balance sheet buying $45 billion of Boeing shares in recent years at circa $350/share, funded by borrowings in order to prop up earnings, dividends and C suite bonuses, Boeing is now looking for the Fed to park $60 billion back into Boeing at mates rates -nil cost, so that they do exactly the same thing again over the next 10 years.

    it is time for the US to stand up to these financial thugs and call time.

  6. It’s Boeing’s option to accept the terms or reject them. Many years ago I opted to pass on a Small Business Administration loan because I didn’t like the terms re: equity. My aviation business could have grown much larger in a very short time but I chose a self-funded, slow growth. I don’t regret it. The concept of government equity in exchange for government funding has been around at least as long as the SBA and student loans. It works for some (GM) and not for others (Boeing).

  7. “The concept of government equity in exchange for government funding has been around at least as long as the SBA and student loans. It works for some (GM) and not for others (Boeing).”

    And that’s the bottom line. It’s unclear why so many seem to be insisting that Boeing should be required to take a loan on terms they find not right for them. It’s up to the business whether or not they want to take money as offered. Ford made the same sort of decision.

  8. The problem is Boeing desperately needs the cash, to pay salaries and wages, and the cost of the 737 debacle, but cannot afford/is plain unable, to borrow it on normal commercial terms. With equity being near worthless, an equity issue would dilute existing shareholders out of existence.

    So how to pay wages and salaries, and ensure security of all those wonderful employees whose livelihoods are now threatened, just because Boeing did not conserve cash when times were good?

    In truly free enterprise, American world, anyone putting cash into the troubled , cash strapped can of worms that is Boeing now, would require a very high tariff. Taxpayer investors via the Fed Reserve or US Govt should expect no less. If we are playing true capitalism, existing shareholders in Boeing should get wiped out.

  9. This article by Jesse Felder explains the financial engineering that hollowed out Boeing’s (and McDonald’s, Caterpillar, and 3M) balance sheets and cash positions over the past 5 years, and how it was driven by “stock based compensation”.

    https://thefelderreport.com/2020/03/25/the-fate-of-the-fantastic-four-of-financial-engineering/?mc_cid=c22fbf3351&mc_eid=5a2add4fe2

    From the article:
    “On average, these companies each spent $200 million per year on issuance of options to top management. Those very same managers were the ones who decided it was a good idea to leverage the balance sheet to buy back stock. At the very same time, they also decided it wasn’t a good time to be a holder of those shares and so they sold, collectively, over half a billion dollars worth of their own shares in the open market. As I wrote about year ago, “If This Isn’t Stock Manipulation, I Don’t Know What Is.” ”

    The equity holders of these companies should not now be bailed out by the US taxpayer, either via the Fed Reserve, or the CARES Act, or any other means.

  10. “If we are playing true capitalism, existing shareholders in Boeing should get wiped out.”

    There’s a mechanism for that. It’s called bankruptcy. If that becomes attractive enough, Boeing will pursue it.

    But be careful what you ask for. A LOT of stakeholders would be left holding bags, including the USAF.

      • Ike didn’t rail against the military/ industrial simplex. He railed against the military/industrial complex.

        Will we all be better off if General Dynamics or Apple buys Boeing’s assets out of Chapter 7? Serious question.

        • Well silly me. Here all along I thought you were concerned about the USAF being among the bag holders. You wouldn’t be parsing words and phrases here would you? But I’ll oblige you in your serious question. Let’s start somewhere sometime with some bad, too big to fail behaver. What a great opportunity this moment might be presenting to us. Tim Cook or Dave Calhoun?

          • Well, there’s a Sophie’s Choice.

            Apple’s customers generally are proud members of a cult. They often have more money than brains. Thus, much of Cook’s success.
            Has Calhoun ever designed an airplane?
            I would say this: don’t hire a bean-counter to run a technology company.
            Question: can a competent CFO keep competent engineers from spending a company into oblivion?

            General Dynamics seems like a better fit than Apple. But I don’t work on Wall Street…