By Scott Hamilton
April 27, 2020, © Leeham News: Passenger traffic should recover to 2019 pre-COVID-19 levels in two to three years. But resuming production at pre-COVID rates will take longer.
Boeing also needs to borrow more money in the next six months to get through the crisis.
These were among the announcements at the Boeing annual shareholders meeting today at which all 12 management-support directors were elected or reelected to the Board of Directors.
David Calhoun, the CEO, also said that after two years, it was pointless to continue negotiations with Embraer over conditions required in the Master Transaction Agreement (MTA) for the Boeing Brasil joint venture.
The proposed commercial and military JVs were terminated Saturday by Boeing. Embraer today said the arbitration process provided in the MTA has begun.
Calhoun didn’t specify what terms of the MTA it believes Embraer failed to meet. Embraer Saturday said it met all terms. It believes Boeing stalled and withdrew from the deal because of its own financial condition, the extended grounding of the 737 MAX and its own reputational problems.
There is speculation that any money from the federal government may preclude foreign investments. Political and labor criticism of taking taxpayer dollars then sending $4.2bn offshore, and jobs along with it, would be untenable.
Calhoun did not announce any changes in production rates. This will come Wednesday, when Boeing announces its first quarter earnings.
But he said it was necessary to continue to keep production going at whatever rates to keep the supply chain going.
In response to a shareholder question, Calhoun said there won’t be any dividends paid in the medium-term years to come—at least 3-5 years. Boeing must rebuild its balance sheet before resuming dividends, he said. The question of stock buybacks didn’t come up.
There are 2,800 idled airliners in the US alone, Calhoun said.
If it will take 2-3 years to get back to 2019 air traffic levels and if oil prices remain depressed, the only aircraft “needed” by the industry for the next while will be to replace those that cycle/time out or require a very expensive D check. It’s going to be a tough next few years for the airframe manufacturers.
The Boeing shareholders who were getting used to big dividend cheques will not be happy about no payments for at least 3-5 years.
If oil prices remain depressed for 2 years that will be the end of the shale oil industry in the US. Prices will then rise again as the US goes from net export to net import.
Yes, the market will take care of oil pricing. COVID slammed on the brakes suddenly so there was a massive supply overshoot. Nice for consumers as long as it lasts, but it will gradually return to normal as well.
Big news- the folks responsible for the mess that Boeing is in were re-elected. Now they may continue to receive their $300,000 per year
money despite miserable performances.
No dividends and no cut in pay for management nor board members.
What a way to run a railroad.
Reminds me of a slash and grab it operation.
On another note, a suggestion as a follow up on the passenger aircraft as freighter series and after the PR flight of the dreamlifter: how are the economics of flying a dreamlifter for cargo purposes vs. the alternative.
I don’t think Boeing understands the massive impact of thousands of small businesses going under nor the costs the employee and owners incur during the next couple of years.
Ergo, a huge part of the travel market is gone for some time.
Its going to be a slow recovery and a lot has to do with the wage stagnation and poorly paid jobs that are lost. You don’t bounce back from a low cost lost job.
And as noted, many airlines have relatively new modern aircraft and have no need or more. An NG is going to be a low cost viable offering.
Until a vaccine is available and we get some stability, all forecasts are no more than WAG (and they are bad enough at the best of times)
I think the dynamics of the COVID disruption are different. There is not a compelling reason for normalcy not to resume, although it will be gradual. There is not fear for the safety of the air system as after 9-11, and pretty much everyone is eager to get back to work. So I think 2-3 years is a reasonable estimate, given what we know now. Hard to make definitive predictions but there is not cause for excessive pessimism.
The dividend cut was probably coming anyway, although zero is much worse than expected. It will give Boeing a chance to recover and invest. It will be a good test of investors to see if they will stick around for the long haul, and whether the years of stable dividends earned any loyalty. There may not be many alternatives as all businesses seek to regroup and recover.
> There is not a compelling reason for normalcy not to resume
I think that is true for vacation travel. But if Covid disruptions go on long enough and companies become comfortable with virtual meetings spending business travel may be depressed for a long time.
I expect there will be some of that, but so much business is conducted over dinners and lunches., for the reason that each party can get a sense of the other, to size each other up. Then there is also a lot of dialog that occurs off the record. That will continue to be true, I’m sure. We’ve had the capability to be on-line for quite awhile now.
On the dividend issue they were forcing it through despite the even before Covd-19 decision. Sucking up to get voted in again no matter what impact it has on Boeing and its future.
Even after Covd-19 they were trying to pay it until they got caught with their pants down publicly (hands out and p;paying dividends)
Boeing is a horrid mess management wise and its not improving.
As for the economy, it was due a recession and there were strong indicators of that before. So the underlying was not as strong as some assume.
Recovery depends on who is in office. Ironically until a change of party occurs the spending will continue.
Infrastructure would actually be a good move as that creates jobs long term and not just construction, John Deer, Cat, Case and many domestic mfgs get a huge benefit which in turns creates tons of j good paying obs.
TW, I know you dislike Boeing management intensely (as do many here), but I don’t think they are as Machiavellian as all that. I think they’ve made some mistakes for sure, but also try to work for the benefit of their shareholders.
That isn’t a crime. If you were a pensioner with a major Boeing holding in your retirement portfolio, you wouldn’t think dividends were such a bad thing. That is the kind of investor Boeing has historically had. The board would not be wrong to try to maintain dividends as long as they could.
We will see now if the shareholders head for greener pastures without dividends. The board was just re-elected so it seems unlikely that there will be a mass exodus, but we’ll see what happens.
The purpose of management is to balance the interests of the company first, vs shareholders as well as employees.
In this case when you have stock arrangements for salary, you corrupt the system and with no morale compass, the management goes all to share holders.
So, short term gain to shareholders and management and a disaster for Boeing and its employees.
Ergo, killing the goose that lays the golden egg.
Boeing management cares only and solely about themselves. The buying off of the shareholders is an ends to the means to line their pockets.
And it works, two recent managers gone and they left with huge bucks despite the disasters that went on under their management.
Of course performance being the criteria for pay, that only pertains to employees.
The board is equally corrupt and complicit in this.
Nothing Machiavellian about it, plain and pure corruption.
Its a terrible shame to see a once fine company put into that.
Is it a crime? Of course not, they write the laws to ensure it is not.
The reality is you are paid the big bucks to perform and they have not but still get the big bucks. So much for both responsibility and accountability they hold everyone else to.
Part of the responsibility is to make the hard decisions (share buy backs and dividends) regardless of the shareholders. You may loose your job but that is why you supposed to be there, not to reap the big bucks.
A truly tragic outcome for Boeing.
Shareholder ar enot the compnay.
TW, your views on this issue are firmly set. I will only point out that Boeing provides about $28B in annual compensation as an employer, and provides another $15B in retirement benefits, that together provide support for an awful lot of people.
Dividends of $4B to shareholders are not that large in comparison, and are comparable to other aerospace sector companies. Until this year, Boeing had paid an uninterrupted dividend since 1942, and only missed then because of the war effort. This year is obviously COVID. That record has been a good thing for all involved.
The buybacks are a different matter, they reflected the view that things could only be good, a downturn would never come, and supported stock price at a time when it really wasn’t needed. In hindsight those costs accomplished little and could have been invested in better ways.
At the same time, the COVID crisis highlights that investment in new aircraft also may not have turned out as expected (man plans, the gods laugh).
The golden parachutes are frustrating for working folk. Continuous mergers and acquisitions concentrate executive pay in a few people, and if they mess up, their careers are over, so in corporate logic, the responsibility and consequences justify the compensation numbers.
My own view is that the drive toward consolidation is the chief evil, and the rest follows. Diversity has great value, as we see in nature and genetics, and is a value unto itself, that is lost in business consolidation.
In any case, I don’t believe the Boeing board and management are out to screw the employees or the public at their own profit, or are corrupt. I think there have been many mistakes because the management thought they were making good decisions, and didn’t have the oversight that a board should provide through their required diligence.
There are board members who could and should have questioned the mistakes, but didn’t out of confidence in their own hiring ability, and the self-imposed blindness that often follows those decisions. What a great person we hired, we can sit back now. If we pay him, success will come. The greater the pay, the greater the success. It’s a nice thought but far removed from reality.
I get why boards want to believe that, but everyone is fallible and capable of error, so it can never be that management choices go unquestioned from above. That is a surefire recipe for disaster. A good manager knows this and will seek out other opinions, rigorously ensuring the board is exposed to all viewpoints.
No need to fear another viewpoint if your own is well-grounded and defensible. It’s good to be questioned and be fully able to defend. If not fully able, then you should be listening to others and rethinking, or seeking advice. Things go south when there are no questions, no discussion.
That’s such a simple principle, but I have seen it ignored throughout my career, and been resented for asking the questions. I’m sure I’m not alone in that.
On the Max side of things…those crashes are a result of when you put numbers before quality. Get it together Boeing. Safety 1st.
Given the landscape, the rational course of action for Boeing seems to be to cut all production on 787 and 777 passenger aircraft. Of course that has a huge impact on the US economy. So what is the government’s offer? Maybe they can buy white tails and store them in the desert, then sell them back to Boeing at some future date.
No company would risk producing a product with no foreseeable near market for that product. Only the government can absorb that risk. Either that, or pay people to sit idle for two years. But, if they build aircraft, that seems more economically sound.
“Boeing sees air traffic recovering in 2-3 years”
IMHO, this Boeing prediction is as good as all theirs regarding 737Max recertification: bullshit!
2-3 years indeed corresponds to what was needed to recover from the previous crisis but they were nothing to compare with the current one.
It is totally premature to presume on how the pandemic will keep spreading (or not) worldwide, how it may be managed and, most of all, the deepness of it economical impact…
The only good news is that Boeing finally get reasoned regarding dividends… for the time being…