After a painful 2019 fraught with the ongoing 737 MAX debacle, the Boeing Co. BA was hoping that 2020 would give it an opportunity to turn the corner at last. Alas, that was not to be, as the novel coronavirus (Covid-19) swept the planet, bringing global economic activity to a grinding halt and throwing the aerospace sector into a tailspin.
To survive the Covid-19 crisis and its aftermath, Boeing will likely need outside help. Thus, the embattled aerospace giant has turned to the federal government in hope of succor, both for itself and for its reeling industry.
Asking for a big rescue
As the federal government began to shape its $2 trillion economic rescue package, Boeing was front and center lobbying for a piece of the pie. The company’s efforts, undertaken on behalf of the whole aerospace sector, were initially well received by lawmakers on Capitol Hill, who proved more than happy to earmark funds for the industry, as the Wall Street Journal reported on April 1:
“The stimulus bill, signed into law last week to ease the economic fallout from the pandemic, includes $50 billion for passenger airlines, half of it in outright grants to be used to cover payroll for six months and the rest in loans and guarantees. Lawmakers allocated another $8 billion to air-cargo carriers, $3 billion to airline contractors such as catering companies and $17 billion to companies deemed essential to national security.”
Boeing, for all its recent struggles, still has friends in Congress. This fact was clearly in evidence in the stimulus bill, which included $17 billion for companies critical to the nation’s security. According to multiple sources interviewed by the Washington Post, this carve-out, while not listing Boeing by name, “was crafted largely for the company’s benefit.”
Beggars want to be choosers
While the stimulus bill has been passed and the desired industry carve-out already set aside, Boeing has managed to complicate things for itself. The rescue package carries a number of stipulations that could be unattractive to incumbent management and shareholders of the companies receiving federal funds. The law stipulates that the federal government may take an equity stake in some companies it rescues, specifically airlines. Boeing has thus far rejected the idea of handing over any equity in exchange for a bailout. On March 24, before the bill was passed, CEO David Calhoun stated that Boeing would reject bailout money if it had such strings attached:
“I don’t have a need for an equity stake. If they forced it, we’d just look at all the other options, and we have got plenty...I want them [the federal government] to support the credit markets, provide liquidity, allow us to borrow against our future, which we all believe in very strongly.”
According to the Wall Street Journal on April 10, Calhoun’s attitude has not helped Boeing’s cause; if anything, it has had the opposite effect, “undercutting the urgency of Boeing’s request.” This conclusion was reinforced by the reactions from leading members of Congress, such as Sen. Richard Blumenthal, who expressed dismay at the company’s muddled message:
“It’s sort of a tale of two companies—on the one hand belittling the need for aid, but on the other hand privately pushing very aggressively for that aid.”
Exploring other options
Rather than be compelled to exchange equity for bailout cash, Boeing has begun to explore other options for financing. On April 10, the company tapped two investment banks, Lazard and Evercore, to help it explore the full range of funding options available to the company.
Boeing’s decision to hire investment bankers does not preclude the potential of Boeing accepting a federal bailout. Rather, it is likely an attempt by Boeing to secure sufficient alternative capital to assure the government that taking an equity stake would be unnecessary, as M&A analyst Cara Lombardo opined on April 10:
“One possibility: Boeing could apply for the Treasury to buy a few billion dollars worth of its bonds and secure the rest of what it needs privately, perhaps from buyout firms or other well-heeled investors.”
Whether Boeing can convince the government to back away from its more stringent requirements remains to be seen. The company has a great deal of lobbying clout and may yet get its way. Investors should pay very close attention to Boeing as this story plays out.
Disclosure: No positions.
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