HOTR: Boeing has options to federal bailout, CEO says

By the Leeham News Staff

March 25, 2020: First, Boeing CEO David Calhoun said he wasn’t an insider (after 10 years on the Board of Directors, and as lead director for many of them). No, he merely had a front row seat in the movie theatre.

Then he trashed his predecessor, Dennis Muilenburg, for stock buyback and dividend policies (that the Board approved).

Next, Boeing said it needs a portion of the $60bn in federal aid it requested for the aerospace industry.

Now, Calhoun appears to have put his foot in his mouth again. Or did he?

When asked about the possibility of the government taking an equity position in Boeing as a condition to a bailout, Calhoun said Boeing has options to federal money.

The Wall Street Journal wrote yesterday, “I don’t have a need for an equity stake,” Boeing CEO Calhoun said Tuesday on Fox Business Network. “If they forced it, we’d just look at all the other options, and we have got plenty.”

There’s a very practical reason for Boeing to object to government taking an equity stake. It would effectively shut down bidding on some key defense contracts.

But wait a minute: if you’ve got all these other options, why ask for a federal bailout for Boeing?

Or was this a message to the street that Boeing is OK?

Still, on CNBC’s Squawk Box, Calhoun said if the credit markets stayed closed for eight months, it would be tough for Boeing to remain healthy.

Bringing up the rear

Airbus paused production because of the coronavirus, in order to implement health safety procedures.

Embraer paused production to do the same.

Boeing plowed ahead with production at its Everett (WA) wide-body plant despite several assembly line workers being diagnosed with coronavirus. Now, one person died who was infected. And still Boeing was slow to pause the line. It finally did so, for the entire Puget Sound region, beginning today. (The 787 production in Charleston continues.)

The contrast doesn’t end there.

Airbus sent an A330-800 to China and returned with two million masks for distribution to hospitals and health care workers. It plans to repeat.

Boeing is at the first epicenter, the greater Seattle area, of the coronavirus outbreak in the USA. There was nothing similar.

The irony of Boeing seeking a government bailout and Airbus going to the private markets is also not lost on people.

Airbus CEO Gauillaume Faury posted this video discussing the actions.

Aircraft returns

Pilots are reporting on social media a growing number of one-off ferry jobs like this: Latest pilot jobs.

These would seem to be indicative of aircraft being repossessed or returned to lessors. If the airplanes were going to storage, the airlines would use their own pilots.

Aircraft retirements

Some airlines already announced the premature retirement of older aircraft:

 

Airline Announced Aircraft Retirement
American 767-300ER and 757-200 fleets by May 2020 and Fall 2021
Iberia First A340-600 sent prematurely to the scrapyard
KLM 747 Fleet by end of April 2021 originally planned
Virgin Atlantic A340-600 fleet retired, June originally planned

 

Even before the widespread grounding, airlines A380s were among the first aircraft grounded: Korean Air, Lufthansa, Qantas (10 out of 12).

Qantas was all the more surprising since their remaining five 747-400s are due for retirement later this year.

This raises two questions:

1) Will airlines retire early numerous A380s, including aircraft less than 10 years old?

2) Will the traffic collapse accelerate the trend towards smaller aircraft on long-haul routes? Even without considering almost certain delivery delays, will this affect the already shaky order books of the Airbus A350-1000 and Boeing 777X?

 

 

 

 

43 Comments on “HOTR: Boeing has options to federal bailout, CEO says

  1. The stupidest president in the entire world, Trump will take a stake in Boeing, effectively ending the WTO arguments.

    • It might follow U.S. government’s $80.7 billion bailout of the auto industry ending up with a – $10.2 billion loss after selling its stock. It is more complicated with Boeing as a big defence contractor. Boeing could split into 2 companies, One in Seattle with commmercial Aircrafts, helos and its derivatives and one in St: Louis “Mc Air” for defence, trainers, space and the rest. Then the US goverment could own stock in Boeing for some time and McAir be a separate stock Company with the US Goverment as its main customer.

    • Yea, I loved his just because I was on the board did not mean I knew what was going on. I was shocked I tell you, shocked when I found out how much worse Muilenburg’s governance was.

      Same guy that voted to put Mr. M as CEO and the Board Chair?

      Want to guess who the next one to go is?

      Maybe its just reflex, if there is a handout his hand goes out?

      Are we surprised? Only if you are Rip Van Winkle asleep this last 30 years.

      • Simple answer is governance at the board level for a company like Boeing means not rocking the boat and ‘acting like mushrooms’
        It really does happen like that.
        I’m not so worried about the past decade but the mis truths the board had been fed over the Max issues. That takes real self delusion to run with that until last December.

    • President Trump is damned if he does and damned if he doesn’t with the Trump Derangement Syndrome crowd. When the circumstances and facts change you change your opinion and actions. That is what he is doing. Trumps tightening of border security probably slowed the virus sightly. No Western nation reacted to this appropriately because they hadn’t been through the SARS pandemic that Asia had experienced. Trump’s wisdom and focus on reindustrialising the unitied states is shown up by the fact that essential medical supplies in the USA are now difficult to obtain because this industry has been offshored into mainly china. My own country suffered shortages of infant formulae (all purchased from supermarkets and exported in containers) and now toilet rolls are gone from the shelves (exported in containers probably to make dodgy masks). Trump is right. You need your own industries and own companies with own know how.

  2. Calhoun should seriously consider to leave and make room for a more capable leader. Whenever he says something it oozes “Boeing” culture to the MAX. Instead of re-creating trust in the company, he reinforces my (by now extremely low) perception of this company.

      • translation of B speak

        Money ? Money ?” we don’t need no stinking government money ” ( I’ve got mine – sure yours – let them eat my shorts )

  3. I can’t remember any major company ever having made 3 such serious missteps of handling (MAX crash 1, MAX crash 2, now this), let alone the smaller ones in between and before, in close succession. Amazing and yet, unfortunately, not suprising.

    I hope Boeing’s constituent parts survive and thrive, but for me the company overall doesn’t deserve to.

    • Pen Central?

      Enron?

      PG&E: Of course I loved that when they did turn the power off people howled.

      BP? (our moto is to run it into the ground then dump it before it fails – true story)

      Granted I think I have to give Boeing first place on top place in high publicity points alone.

  4. As I wrote yesterday in a different article, Calhoun must have been on some medication when he arrogantly made the “Equity Stake”. Additionally he kept preaching about “Bailout” when the real procedure is a “Loan” with all interest rates and repayment timetable spelled out.
    Also Share Buybacks, Dividends, and extravagant Bonus terminated, but Calhoun was referring to continue enforcing these Financial Chaos within Boeing and All the US Airlines seeking Santa Clause type Bailout on a Silver Platter. No Mercy with these companies are where they are for Bigtime messing around with Corporate Healthy Cash Flows. Those that enjoyed Stock Option Plans offered by their respective companies have also been taken for a ride in the dimiaing values of their Stocks.

    • “Boeing steadily increased its dividend to $US8.22 a share last year from $US2.92 in 2014.”
      The background to that is interest rates have been so super low, that growing the company from borrowed money makes a lot of financial sense instead of retained cash flow. Thats works a treat when the the CEO and other executives are on top of their game and the board is doing its job.
      Even Steve Jobs didnt become Chairman of Apple until after resigning as CEO.
      With Boeing Commercial having its own CEO it doesnt seem even he was properly supervised all the way up the executive chain.
      If it wasnt for the CFO and Chief Company Strategy Officer seemingly putting the brakes on the NMA earlier that project would be burning cash right now. And that was likely because he could see existing 737 Max customers would wholesale switch to the newer plane, in doing so they would swap buying a very profitable plane to buying one which would lose money for some time for Boeing.
      Now even the Max when back in service wont be making money , as mentioned, some buyers have shown interest for the ones airlines cant take. That would be at ultra low prices of course, reflecting current fuel prices , not the fuel prices airlines committed to new planes back before the last fuel price drop around 2014-15

  5. I think Calhoun has his eye on this:

    https://www.bloomberg.com/opinion/articles/2020-03-23/companies-can-borrow-from-the-fed-now
    https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200323b1.pdf

    Rather than lending only to Banks who then lend to corporations the Fed has announced it will lend up to 140% of assets directly to corporations. This will give Boeing much of what it needs structured as a load and part of a wider response by the US Government. It may not even get classified as a subsidiary by the WTO.

    • Yes . The loans called ‘commercial paper’ which larger companies use. The money for these has dried up as often other large corporates with spare cash will be the source of the funds. They are keeping their own money.

      The Fed becomes the provider of the funds and more importantly doesnt have a cash crisis of its own and can charge relatively low interest rates rather than maybe the current junk bonds rate

  6. Also saw somewhere that unsurprisingly AB are expecting deferrals and cancelations, however airlines, including non-customers, are ringing asking to take the slots. I doubt if anybody who is in the market just now really needs aircraft. Anybody looking at near term slots is making strategic planing, and that some of them are evidently BA customers. I think we can assume the MAX order book is about to take a near term hit instead of the long term hit we’ve all been expecting.

    • I think we need to see airlines actually stepping up with cash.

      I can’t think of any that can afford a gamble right now, it will be interesting to see which side the ball drops on.

      Those retiring older aircraft know they won’t need them for a time and have replacements in the pipeline. 767s might sell for conversions as cargo is up (no belly capacity right now).

      Putting deposits on aircraft is hugely risky when you don’t know what the outcome is at all.

      • Hi TW, what I think we’re seeing is compaies with cash & a credible balance sheet, ie IAG and QF, looking at the landscape, ie NAS and Virgin, & starting to plan for their failure.

    • “”I doubt if anybody who is in the market just now really needs aircraft.””

      As LNA reported, Tianjin is soon back to 6/month. I doubt these A320neo will be parked by Airbus.

      Vaccine takes time, but better medication might be available in few months, that will boost a lot. At one point it will make more sense to keep old people with more risk separated and the rest of the world back to normal.

  7. AK is cutting 30 flights so far, Hawaii flights look to be off the table. Oddly Mexico is continuing though I thought that was cancelled as was Canada.

    South West W is cutting 1500.

    Removes MAX need from the picture and with fuel prices crashing?

    • In New Zealand I am on an NGO Board. Our business is totally closed for 3 months. We received, within 5 hours of applying 80% of staff salaries for those 3 months from the Government. The Government relief here is for wages IF you intend to keep people employed. The Reserve Bank is allowing easing so that trading Banks can freeze repayments from clients (on a case by case basis). AS the Health Care system is State run there are no big issues (Other than the charge per prescription rising from $5 to $12). Corporate largess by Governments distorts nations for years. I am very worried for the USA (which is a country I love)

      • Sounds like a sensible country. Sadly the U.S. is a kleptocracy.

        • Sweden isnt shutting down , it’s only ‘requesting’ social distancing, and requesting distance learning. Their population is more like 2x that of NZ and have had 60 deaths. NZ has zero deaths.

          • I love the USA as well and I am worried as well.

            We live and maybe die with what we wrought.

          • I looked up the NZ situation, HarryM is overstating it

            The PM says the ‘shutdown is 4 weeks not 3 months
            https://www.beehive.govt.nz/speech/prime-
            monthsminister%E2%80%99s-statement-state-national-emergency-and-epidemic-notice

            The charge per prescription isnt rising from $5 , its always been the case some medicines arent fully funded by state , thus the charge of $12 not $5
            https://www.pharmac.govt.nz/information-for/covid-19-pharmacs-response/change-to-monthly-dispensing/

            I see also Congress providing ‘bailout money’ for Boeing but Calhoun saying ‘it doesnt need it’
            Clearly its semantics Calhoun, as the government money will go to pay Boeings suppliers
            So as the plane is rolled out, the parts not made by Boeing will be owned by the government , like the entire fuselage for 737 etc.
            I presume when Boeing is paid by the airline, the government gets paid back or pays for the next planes major/minor parts .

  8. AK Airlines: I believe they need to can their CEO.

    YEsterday it was 30 flights and looking at South West who canceld 40%, today they say they are cancelling g70-%

    That decision was not made overnight, so they are release BS.

    When this hit we got a C-19 Email about what AK was doing that was nothing more than a hype to great deals and tell us to travel (and the CEO and his family were going to Hawaii come hell or high water)

    The guy is as clueless as Boeing mgt.

    • I actually have some insight into Alaska’s move. They’d been looking all over where to park airplanes. SEA-TAC isn’t big enough. Boeing Field, Paine Field and Moses Lake were filled with MAXes and other Boeing airplanes. I surmise they finally came up with a solution. But I knew over last weekend this was coming.

      • No issue with it coming, just not impressed with the one sales sheet under the guise of C-19 concern or sudden change of flights.

        If you know its going to change you should not put out a mis-leading statement.

        Clearly from South West chops it was going to be a lot more and soon.

  9. Yes she is saying 4 weeks. MINIMUM. Payouts for companies that would otherwise need to lay off staff is for 3 months. I am not overstating anything. We simply do not know yet how long the current total lockdown will last. BUT I wish US would do the same NATIONALLY. We are still at zero deaths. I will not be allowed to visit the US on holiday again until COVID is under control. I was due to do so in October.

    • It doesn’t matter here but it would concern me as a board member you have got the wrong principal conclusions from public information…twice.
      In the context of Boeing board members not know what was going on, as has been discussed here. Unfortunately coming to the wrong conclusions , even in simpler occasions and for those in a responsible role seems to more common than we would think

    • In theory if everyone locked down thoroughly for only 2 weeks this virus would go extinct. Its the half assed measures that is prolonging it for months and months. A few essential services (medical, food) aren’t the problem.

      All those offices with ‘business as usual’ that are unnecessarily open, rather than working from home, aside from relatively ineffective measures such as distancing and face masks without an aggressive cleaning program.

      • That is good in theory. In New Zealand every day of total isolation so far has seen more cases than the day before. However we do seem to have contained it into clusters that can be identified. If, in four weeks, we have zero new cases, we will go to level 3. Over 70’s asked to stay at home etc. Staff in shops, manufacturing plants etc simply need to stay apart. Both of my sons working on line and one of my daughters is teaching using Google classroom.
        Until the world has this pretty much under control huge parts of our economy are stalled. With long haul aircraft grounded most of our high value exports are held up. Tourism is dead. We will not be in full business by Easter. But we will be one of the first to get this under control.
        Air travel is in real trouble for two years.

        • It takes 5-14 days from the infection being passed to symptoms appear, and thats only about 40-50% the cases that have symptoms
          Thats why lockdowns wont have any effect for at least a week .
          NZs data for new cases indicates a lot have flight numbers connected , so they bought the virus in from overseas, so any restrictions in NZ would not be valid for them

  10. I’m late in seeing some of the political comments. Knock it off, everyone.

    Hamilton

    • LOL.

      Its so much as much political (or all political at this point) that trying to draw a line is most interesting.

      And good luck of course.

      • Well Boeing is now making transparent ( i hope ) face shields asx part of their virus support at cost or free contribution.

        I’ll bet the design came from BOD and VP posterior covers which were NOT transparent since they could not see what they were doing or how things came out :-PP

          • Pop Quiz – which Boeing executive ( past or present ) should be nominated for the ” Milo Minderbinder ” trophy?

            I nominate Hairy Stonecipher ex Jack Welch and MDC executive before infesting Boeing.

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