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Give Boeing the Bailout It Doesn’t Deserve

Brooke Sutherland

(Bloomberg Opinion) -- A Boeing Co. bailout is to the coronavirus crisis what the bank bailouts were to the financial crisis: a systemically important — but currently deeply unpopular — company getting a handout after its own missteps weakened its defenses in a time of need. 

Boeing has reportedly asked the White House and lawmakers for short-term aid for itself, suppliers and airlines as coronavirus-related shutdowns across the globe bring travel to a near standstill. Boeing certainly needs the cash: the now one-year grounding of its 737 Max jet following two fatal crashes has left it reliant on wide-body models for which demand is cratering. The company spooked markets last week by drawing down the full amount of a $13.8 billion term loan and announcing cash-preservation moves including a hiring freeze and limits to overtime pay. JPMorgan Chase & Co. analyst Seth Seifman has suggested the company will cut its dividend and Standard & Poor’s on Monday lowered Boeing’s credit rating two notches to BBB on expectations of weaker cash flow for the next two years. But while President Donald Trump on Monday explained a developing White House plan to backstop airlines by pointing out that their current challenges were “not their fault,” the same can hardly be said of Boeing.

The company’s cash woes wouldn’t be nearly as great if it wasn’t for the Max crisis, and the blame for that rests not with greater forces behind anyone’s control but with Boeing itself. The company made the fateful decision in 2011 to adapt its existing 737 model for new engines, rather than starting from scratch, after rival Airbus SE surprised with an update of its own that quickly gained traction. Boeing advocated against more rigorous simulator training on the Max for pilots of its older models because that boosted the economic proposition for airlines. It abandoned that stance only recently as it became painfully clear the degree to which the pilots on board the doomed Max jets struggled to assess the problem and regain control. Employee messages suggest a cavalier attitude toward global regulators. 

“Short-term access to public and private liquidity will be one of the most important ways for airlines, airports, suppliers and manufacturers to bridge to recovery,” Boeing said in a statement, describing the virus as an “urgent challenge” to an aerospace industry with a still-strong long-term outlook. Indeed, Boeing is the biggest U.S. exporter and a national icon. It directly employed more than 150,000 people at the end of 2018, while its supply chain supports in the neighborhood of 1.5 million jobs.

The natural response to Boeing’s cash crunch and the weakened demand for the only planes it can currently sell is deep layoffs. This is the route the company has gone before, as in 2001, when then-CEO Phil Condit announced layoffs of as many as 30,000 workers in the commercial aircraft division just one week after the 9/11 attacks, as the Seattle Times notes. Such wide-scale layoffs this time around would be devastating to the U.S. economy. It’s a situation that the federal government should do everything in its power to prevent. That doesn’t make it any easier to stomach the idea that a company responsible for so recently killing 346 people will be handled a chunk of government cash. Any money that does come should have heavy strings attached that force Boeing to make substantial changes to the way in which it develops aircraft and interacts with regulators.If anyone deserves a helping hand, it’s Boeing’s supply-chain, which has had to suffer first through the pre-Max crisis squeeze on their profit margins and then through the jet’s global grounding and production halt. Boeing has stepped up with financial assistance to those suppliers hardest hit by the Max’s woes, but its ability to continue doing so will be challenged as airlines defer deliveries to cope with the demand slump. Ironically, if it wasn’t for Boeing’s prolonged Max nightmare, the airlines would actually be in worse shape today. The grounding kept a lid on capacity expansion plans for many of the biggest buyers and forced airlines to become adept at making massive adjustments to their flying schedules. Those airlines, by the way, are hardly as innocent as Trump made them out to be. The coronavirus is indeed not their fault, but it certainly hasn’t helped that the biggest carriers spent 96% of their free cash flow over the last decade on share buybacks. Just as there are no atheists in foxholes, there are precious few saints in government bailouts. 

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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