Bailout-Seeking CEOs Need to Give Up Something in Return

(Bloomberg Opinion) -- U.S. airlines are on track to receive $50 billion in government aid, while Boeing Co. and aerospace suppliers are seeking at least $60 billion in assistance. Only one of those groups has shown any kind of self-sacrifice before putting its hand out.

Details started to trickle out Wednesday on the Treasury Department's assistance proposal for an airline industry brought to its knees by a slew of border closings as the world desperately tries to stem the spread of the coronavirus. The package will consist of secured loans, rather than the mix of loans, grants and tax relief the industry had sought, Bloomberg News reported on Wednesday. This will come on top of a relief package passed by the Senate late Wednesday that provides paid sick leave and food assistance for vulnerable populations and financial help for coronavirus testing.

Underscoring the urgency of the sector’s needs, Delta Air Lines Inc. on Wednesday announced a stunning 70% reduction in flying capacity. Even that may not be enough: the current plans likely don’t reflect a closing of the U.S.-Canadian border that was announced earlier on Wednesday, nor any limits on domestic travel, which President Donald Trump has said are possible. As a result, Delta is parking half of its fleet — more than 600 planes — and deferring nearly all capital spending, including new aircraft deliveries. For the aerospace manufacturing sector, that means both significantly less maintenance work on existing jets and a dramatic drop in demand for new planes, fueling their call — championed by Boeing — for assistance. 

Everyone has an argument for why they need a hand, but only the airlines have publicly demonstrated a willingness to make changes to the way they run their business and compensate their leadership. Delta suspended its buyback program earlier this month. CEO Ed Bastian had already cut his salary to zero for the next six months and the board will now forgo its compensation as well. Officers and mid-level managers will also take pay cuts. United Airlines Holdings Inc. and Southwest Airlines Co. have also announced spending reductions that include salary cuts or freezes for their executives, while American Airlines Group Inc. CEO Doug Parker is paid only in stock. “We are having constructive discussions with the White House and Congress, and remain optimistic that our industry will receive support to help address this crisis,” Delta CEO Bastian said in a note to employees on Wednesday. “That said, we have to continue to take all necessary self-help measures.” 

I’m not going to argue that the airlines are some beacon of corporate responsibility, and the reality is these cash preservation measures aren’t going to be enough on their own to save some of these companies if the worst-case scenario for the coronavirus pandemic is realized. But it’s better than doing nothing and the symbolism is important for anyone who has their eyes on government cash. And the silence on this front from Boeing and its suppliers has been deafening. 

Not a single major U.S. aerospace manufacturing CEO has announced a pay cut to my knowledge. That includes Boeing’s David Calhoun, who collected annual six-figure cash payouts during his decade on the board and then was awarded a $1.4 million salary, a regular bonus that will pay out at a minimum of about $2.5 million this year and the promise of a special $7 million payout if he hits certain strategic milestones when he became CEO earlier this year. As a major engine supplier, General Electric Co. is likely to be part of any conversation about an industry-wide bailout, even though it has access to $35 billion in bank lines. CEO Larry Culp’s $2.5 million base salary is the highest for any CEO on the S&P 500 Industrials Index. Including bonuses, pension and stock grants, aviation division chief David Joyce made nearly $24 million last year on an SEC reported basis, according to GE’s proxy filing. Whether GE individually appeals for support or — as is more likely — just tags along for any broader package, those numbers will be difficult to explain to the American taxpayers that are footing the bill.

Notably, the airlines haven’t yet taken the ax to their dividends, but these pale in comparison to payouts from the aerospace suppliers. Boeing paid nearly $5 billion in dividends to shareholders last year, while Delta paid less than $1 billion. United Technologies Corp. doled out $2.4 billion in dividends, while United paid nothing. GE already cut its quarterly dividend to a mere penny per share and halted share repurchases while it dealt with a severe drop in demand for its gas turbines. But other big suppliers and Boeing have been mum on this front. Bloomberg’s Dividend Forecasting model is currently projecting Boeing’s dividend falls by more than half. Its buyback program was suspended in the wake of a global grounding of the 737 Max jet following two fatal crashes.  

Boeing is also set to use debt to finance a $4.2 billion purchase of a majority stake in a joint venture with Embraer SA’s commercial-jet business. Asked if the deal would be scrapped to help preserve cash, a Boeing spokesperson said, “We don’t comment publicly on discussions between the parties or market speculation. We are addressing the regulatory approvals process and outstanding closing conditions.” The venture is key to maintaining a competitive balance with Airbus SE, which has taken over Bombardier Inc.’s regional jet business. But strategic M&A is the ultimate example of discretionary spending in times of need and that deal — already held up for more than a year by European regulators — should increasingly be viewed as at risk. There’s no such thing as a free bailout. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

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