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Boeing’s Unraveling Quickens With 72% Plunge From 2020 Peak

Julie Johnsson and Alan Levin

(Bloomberg) -- Boeing Co.’s rout deepened as investors reacted with alarm to news that the planemaker is seeking at least $60 billion in U.S. government aid for itself and suppliers in a race to shore up cash during the coronavirus pandemic.

The federal support would encompass “public and private liquidity, including loan guarantees,” Boeing said Tuesday. While the proposal’s details are still being fine-tuned, the bulk of the funding would flow through Boeing to its network of partsmakers, said a person familiar with the matter. Other companies could separately use the guarantees to line up their own financing.

The bailout push won an enthusiastic endorsement earlier from President Donald Trump, who told reporters that “we have to protect Boeing, we have to help Boeing.” His administration is discussing a broad-based stimulus package of as much as $1.2 trillion to blunt the economic impact of the widening crisis, and airlines and hotels are also rushing to line up government financing with the U.S. travel industry besieged.

But Boeing’s plea for help underscored the strain on an aviation industry grappling with its deepest crisis in decades. With the pandemic’s duration still unknown, talk is shifting to dire questions such as whether Boeing -- until recently a prodigious cash generator and the country’s most valuable industrial company -- is too big to fail.

“Boeing will not survive without a government bailout,” Bill Ackman, of Pershing Square Capital Management, said in an interview on CNBC. The hedge fund wasn’t a Boeing investor as of the latest public filings.

Boeing plunged 22% to $96.60 at 10:56 a.m. in New York before trading was halted as the broader market plunged. The company’s shares have tumbled 72% since their 2020 peak on Feb. 12, wiping out about $141 billion in shareholder value. Boeing’s European rival, Airbus SE, has dropped 64% over the same period.

“This is the last surviving American builder of jetliners,” said Loren Thompson, chief operating officer at Lexington Institute, a nonprofit think tank that has received contributions from the Chicago-based manufacturer. “The Trump administration will do whatever it needs to protect the company from financial difficulties.”

Travel demand is cratering as consumers follow health warnings to isolate themselves at home. Airlines for America, a trade group, is lobbying for $50 billion in grants and loan guarantees for passenger carriers. A hotel association wants $150 billion in backstop measures.

Twin Crises

Boeing is preparing for an extended disruption from the virus that also threatens to spill over into its factories, where some employees have been infected. The timing couldn’t be worse, hitting while the manufacturer is still reeling from last year’s grounding of its best-selling 737 Max jets after two deadly crashes.

The company just drew down a $13.8 billion loan to bolster its reserves. But any government aid will face tough scrutiny on Capitol Hill, where committees have been investigating the Max tragedies, and from victims’ families.

Michael Stumo, whose daughter Samya died in the second of two Max accidents that prompted the flying ban, insisted that any government assistance to Boeing come with strings attached. He called for an overhaul of the system that allows the company’s engineers to certify the safety of its airplanes.

“Public bailout needs to provide public benefit,” Stumo said on Twitter.

The cost to protect against a default by Boeing surged to the highest level on record. Credit-default swaps insuring the company’s debt through December jumped to 367 basis points, up from 257 on Friday, according to ICE Data Services. Five-year contracts climbed to 465 after rising as high as 488, a record.

At that rate, the market is effectively pricing in 31% odds that the planemaker would default on its obligations in the next five years, according to data compiled by Bloomberg.

Business Pressure

Boeing said the aerospace industry’s long-term outlook is strong, even as the virus outbreak keeps many people at home. Thus the need for aid.

“This will be one of the most important ways for airlines, airports, suppliers and manufacturers to bridge to recovery,” the manufacturer said in a statement. “Funds would support the health of the broader aviation industry, because much of any liquidity support to Boeing will be used for payments to suppliers to maintain the health of the supply chain.”

With Boeing in cash-preservation mode, analysts increasingly expect the company to slash dividend payments -- a popular target of the company’s critics on Capitol Hill. The average estimate for the payout fell by more than half, according to data compiled by Bloomberg.

Boeing could burn $11 billion to $12 billion in free crash this year as the virus slows the recovery of the 737 Max program, S&P Global Ratings said Monday. That’s about twice the outflow expected by Wall Street, based on the average of analyst estimates compiled by Bloomberg. S&P lowered Boeing’s credit rating two notches to BBB, or two steps above junk.

The planemaker halted production in January of the Max, its biggest source of cash, while waiting for regulators to lift a global flying ban that reached the one-year mark on March 13.

A contractual clause that allows buyers to cancel airplanes that are delayed more than a year past their delivery date could also hurt Boeing, said analyst Richard Aboulafia of Teal Group.

If the slump is prolonged, some buyers may walk away from the 400 or so newly built Max that Boeing can’t deliver because of the grounding. Boeing would be required to refund any advance payments they’d made on the aircraft, he said.

‘More Precarious’

“Boeing is trying to avoid layoffs and protect its fragile supply chain,” Ron Epstein, an analyst at Bank of America Corp., said in a note to clients. “The situation is made more precarious by the 737 Max program, which still awaits regulatory clearance to enter back into service.”

To meet financing needs this year that included a $4.2 billion deal to take over Brazil’s Embraer SA, Boeing had planned to issue term debt or commercial paper -- a financing market that has been disrupted in recent days.

Boeing had $6.1 billion in commercial paper borrowings as December 31, and a $9.6 billion revolving credit line agreement, according to Jan. 31 filing with the Securities and Exchange Commission.

“We believe our ability to access external capital resources should be sufficient to satisfy existing short-term and long-term commitments and plans,” Boeing said in the filing. “However, there can be no assurance of the cost or availability of future borrowings under our commercial paper program or in the debt markets.”

(Updates with comment from Bill Ackman in fifth paragraph)

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