Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
- Bjorn’s Corner: New engine development. Part 3. Propulsive efficiency April 12, 2024
Boeing has $15bn in liquidity and can survive in short term; credit markets need to reopen
By Scott Hamilton
Boeing CEO David Calhoun. Source: CNBC.
March 24, 2020, © Leeham News: Boeing CEO David Calhoun said the company has $15bn in liquidity and can survive in the short term, but federal aid is needed as long as the credit markets aren’t open.
The US Defense Department is working to accelerate payments to Boeing, which has a large defense business. Revenue at Boeing Global Services is down as airlines across the globe shut down or sharply reduced operations.
Calhoun made his remark on CNBC’s Squawk Box today.
Avoiding bankruptcy
Asked twice whether Boeing might be headed for bankruptcy without a federal bailout, Calhoun didn’t answer directly. But he said if the credit markets remained closed, Boeing would be in trouble eight months from now. Short-term, Boeing has liquidity, he said.
But the supply chain needs help. Seventy cents of every dollar Boeing receives in revenue goes to the thousands of suppliers serving the company, he said.
Boeing’s request for $60bn in federal aid is in part to pay the supply chain during the COVID-19 crisis.
737 MAX
Boeing’s own recovery plan before the virus crisis emerged relied in part on recertifying the 737 MAX and resuming deliveries.
Boeing previously predicted certification should come by mid-year. LNA believes this may slip a month of two, unrelated to the virus. But it is highly questionable whether airlines will want to take delivery of the MAX when recertification of the MAX is received. Calhoun didn’t address this question, saying only he expects deliveries to recover. Talks are underway with China about its orders and new orders, he said. Calhoun declined to predict if or when new orders might be placed by China.
Structuring a bailout
This uncertainty further argues for a bailout. Asked how one should be structured, Calhoun said the simpler the better. CNBC asked about the criticism of stock buybacks; Calhoun said there won’t be any buybacks until after any bailout is repaid and Boeing’s balance sheet is restored to pre-MAX grounding levels.
“I don’t have a need for an equity stake,” Calhoun told FOX Business’ Maria Bartiromo.
Translation:
How about this deal for the taxpayers: heads we win, tails you lose.
Calhoun keeps referring to “Bail”, not to be confused with a LOAN, and he also should be reminded that there will be NO MÁS Share Buybacks/Dividends to Shareholders/Extravagant Bonuses, etc., after this Pathetic experience with BOEING’s Finances, specifically for these reasons. This Santa Claus attitude should be abolished from the US Industries and Corporations.
When the upper end fails, we pay, always been true, I don’t see that changing ever.
Essentially is a question of trying to save the people at the lower levels vs the muck up of the uppers.
And regardless of mis-management, this is a crisis that Boeing had nothign to do with, amazing how the elements came together at the worst possible time.
One of the aspects is, not MAX specifically, but will anyone be taking any aircraft for a while? A220/A320 any EO/E Jets etc. If you are not flying let alone trying to survive at all?
Ironic that both Boeing and Airbus get put in the same spot and Boeing has a lot of MAX to push into the system if it recovers.
Boeing & Airbus are not quite in the same spot.
Any Boeing MAX customer should be able to cancel deliveries that are more than 12 months late, and get their progress payments back. Cash flow positive cancellations for the airline.
However Airbus customers who would like to cancel are going to at least lose their progress payments, and maybe have to make a default payment. Very cash flow negative for the airline.
In this situation Boeing customers have a financial advantage, but no airframe
Problem solved, Boeing doesn’t need Government money, according to Calhoun:
https://www.reuters.com/article/us-boeing-737max/boeing-ceo-does-not-want-u-s-to-take-stake-in-company-after-coronavirus-stimulus-idUSKBN21B1WN
Yet Congress has allocated billions to Boeing and its supply chain.
Calhoun is using semantics, the money will be to ‘pay its suppliers’.
Likely the ‘major parts of the plane will be owned by the government’ till Boeing is paid by an airline for a completed plane.
That way they can roll them out no matter what
I predicted Boeing might very well go bankrupt over the MAX disaster. If they go bankrupt now, or being bailed out, which for me is the same, we will never know if my prediction would have held true.
Certification of the MAX in late summer… by whom? The FAA possibly, EASA, I don’t think so. Will airlines take deliveries? With the oil price down dramatically and travel weak for the rest of the year AND no EASA certification I very much doubt it. Much more probably we will see many more orders cancelled. Some will be dead completely, other will switch to A220 and A320. As Airbus will also lose a number of orders they will have some slots for urgent demand too.
If B needs to raise money and can’t borrow it from conventional sources (please no Gov’t “loans”) they should have to sell new shares at whatever price they can get for them. The existing shareholders will be diluted by this just like (but opposite) the way they were benefited (in the short term) by share buybacks.
The meta lesson here is: run the company with a 20-30 year time horizon (a moving point) and concentrate on making the best products and providing the best services you can. The profits will take care of themselves. Distribute profits beyond capital and reserves needs as old fashioned dividends only, no buybacks!
Trump says equity is on the table.
https://finance.yahoo.com/news/trump-says-not-let-boeing-200325469.html
In a post to an earlier B story (b4 COVID) I mentioned the likely outcome I was seeing:
– hive off military business to current shareholders, for their “protection “ with Uncle Sammy Trump favorable.
– reorganize (ch 11 or 7) commercial airplanes with close to 100% haircut to shareholders and lenders. Airline customers lose their deposit in this scenario as they become unsecured creditors. Ditto for any collective bargaining agreements/pension plans etc…
What are the odds?
Arent pension funds the first thing to go?
( If they even as tangible asset anymore )