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Boeing stock falls as planemaker mulls bailout options

Boeing (NYSE:BA) hopes thousands of workers will retire or accept a buyout offers as the planemaker races to tighten its operations as it ponders what kind of bailout to accept from the US government.

The Seattle-based manufacturer is expected to start by offering exit packages to workers in the US, and is considering cutting production for wide-body jets as demand falls, in the wake of the coronavirus pandemic which had brought economic activity to a near standstill. The group has a worldwide workforce of 161,000.

At the same time, chief executive Dave Calhoun is reportedly in talks with the White House about a bailout to get the business through the health emergency. The group has previously told Congress that the aerospace industry needs some $60bn in support.

The White House, as part of its $2trn stimulus package, has so far set aside $25bn for carriers and $17bn for firms “critical to maintaining national security”, such as Boeing. But Steve Mnuchin, the treasury secretary, has hinted that government aid would come with strings—including an equity stake for the state.

Boeing stock falls as...

Calhoun has rejected this, for now, saying last week the company had “plenty” of other options.

Boeing may try to get access to the government’s $454bn package set aside in the stimulus for loans and guarantees to big firms, which would not involve giving up equity. The group may also try to borrow on the money markets, but firms are currently raising cash in the bond market at onerous rates compared to a few months ago.

Boeing could be more vulnerable than the European rival, Airbus (EURONEXT:AIR) in the crisis of the pandemic. The company had to deal with the 737 MAX crisis, which suffered two fatal crashes in just over a year, and its financial implications.

Boeing stock falls as...

A third of Boeing’s revenues in 2019 came from its defence arm, which, with its services division, will bring in $5bn in profits this year, according to broker Bernstein. It has cash on its balance-sheet, the balance of a $14bn credit line and has suspended its dividend.

However, the company burns through $4.3bn of cash a month with a complete suspension of deliveries, according to investment bank Jefferies, which has a buy rating on the stock. Stock in Boeing closed down 5.7% at $123.27 in trading on Thursday.

Boeing will also receive $882m from the US Air Force that it had retained due to ongoing technical problems involving the KC-46 tanker. The US Air Force said yesterday the move was in line with government policy to free up cash flow of firms “to combat coronavirus impacts on the industry base”.

Boeing stock falls as...

According to analyst Robert Stallard at Vertical Research Partners, a taxpayer bailout would leave the company saddled with debt and subject to stringent regulatory oversight. He said that government aid and public markets would be sufficient to keep Boeing afloat.

Despite the troubles that Boeing faces, Jefferies has a buy rating on the stock.

All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
Nicholas Say

Nicholas Say is originally from Ann Arbor, Michigan, and has a long-standing interest in the global financial markets. In addition to writing, Nicholas also enjoys making arsenal condiments.

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