Boeing Closes In on U.S. Lifeline After $142 Billion Wipeout

(Bloomberg) -- Boeing Co. is edging closer to winning a government bailout as the once-mighty company races to secure a lifeline amid the aviation industry’s worst crisis in decades.

Backstop financing would start to slide into place next week if the U.S. Congress approves a Senate Republican proposal to provide as much as $208 billion in collateralized loans and loan guarantees for companies and industries jeopardized by the coronavirus pandemic. Boeing called this week for $60 billion in aerospace aid, mostly for itself.

With a global recession looming, the U.S. planemaker -- erstwhile symbol of American manufacturing might -- is worried about safeguarding its operations and keeping thousands of suppliers afloat through a disruption that could linger for months. Airlines are postponing deliveries of new jets and requesting aid of their own as consumers hole up at home because of the outbreak. Delta Air Lines Inc., for example, is burning through $50 million dollars a day.

“We are getting good signals from the Hill,” said Eric Fanning, head of the Aerospace Industries Association, a trade group representing civil aviation and defense manufacturers whose employees make up nearly 20% of the U.S. factory workforce. “At a time of crisis, liquidity and cash flow are critical.”

Boeing’s dimming prospects were reflected in a staggering share collapse. Boeing tumbled 44% this week to $95.01 at the close Friday, the lowest in almost seven years. The shares have tumbled 73% since their 2020 high last month, wiping out $142 billion in market value.

Loan Guarantees

The company would likely qualify for government-backed loan guarantees under the proposal crafted by Republican leaders Roger Wicker, chairman of the Senate Commerce Committee; Richard Shelby, chairman of the Senate Appropriations Committee and John Thune, the Senate Majority Whip.

While the details were still being hammered out Friday, Boeing might be able to collect the aid without a showdown in Congress, where some of the company’s fiercest critics are investigating two deadly crashes of the company’s 737 Max jet.

That’s because $150 billion in assistance would be distributed by Treasury Secretary Steve Mnuchin to entities that he determines are in jeopardy -- without Congressional approval. Lawmakers are also considering proposed relief of $58 billion in loans for passenger and cargo airlines.

The government might also take warrants or equity stakes in the companies it assists, under the measure. A vote on the stimulus package could come as soon as Monday.

The prospect of large-scale bailouts to floundering industries is already drawing fire from one fiscally conservative Republican: Nikki Haley, who’s widely considered a presidential contender for 2024. She resigned from Boeing’s board this week in protest of the company’s quest for federal assistance.

But the Chicago-based company is signaling a measure of confidence in winning the lifeline.

“We are encouraged that the Senate is acting with urgency,” Boeing said in a statement. “We are focused on the health and well-being of our employees and our extensive supply chain, and continue to monitor legislative action.”

Perhaps fueling Boeing’s share declines, speculation had spread among investors that the company could be forced to file bankruptcy as a condition of federal aid, in a replay of the government’s General Motors rescue more than a decade ago, said Bank of America Corp. analyst Ron Epstein. While he views such a prospect as “unlikely,” the company’s share collapse underscored investor anxiety.

“Boeing’s not GM,” Epstein said in an interview Friday. Heading into the last global recession, the automaker was in deep trouble and “probably had to be restructured anyway, and 2008 just accelerated that.”

Travel Shock

Boeing wouldn’t be in any danger of running out of money if not for the shock to the travel market, Epstein said. But there’s a risk that it could over the longer run, he said, noting that the company paid out $60 billion to 17,000 suppliers in 2017.

“I think it’s a question of how long this lasts,” he said. “Boeing has a history of helping out their suppliers when stressed, and they’re stressed. Does Boeing have enough to go around to take care of themselves and suppliers? No.”

The Senate Republican package would prohibit executive pay raises and golden parachutes for two years. President Donald Trump said he wants a ban on stock buybacks for companies receiving federal aid.

Boeing got a jump on potential criticism late Friday by suspending its dividend and extending a pause in share repurchases that began last year after the Max’s grounding. In addition, Chief Executive Officer Dave Calhoun and Chairman Larry Kellner will forgo all pay until the end of the year.

Representative Peter DeFazio, an Oregon Democrat who is chairman of the House transportation committee, hasn’t commented directly on Boeing’s distress from the coronavirus crisis. But he has been critical of bailouts that went to large companies after the 9/11 terrorist attacks in 2001 and in the 2008 financial downturn.

He’s also leading an investigation into the two crashes of the Max, Boeing’s best-selling plane.

“I won’t support any form of relief that doesn’t come with strict conditions ensuring American employees get taken care of first,” DeFazio said in a statement Thursday. In previous bailouts, he said, executives got hefty pay “while workers got screwed.”

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