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This is why Trump shouldn't bail out Boeing 

Donald Trump, planes and the Earth
Boeing's 737 Max troubles mean a Trump coronavirus bailout might not even work Credit: The Telegraph

Despite its size, the Seattle aviation behemoth is no more deserving of a bailout than small family-run businesses

Let me get one thing straight: like it or not, Boeing will probably get some form of government bailout. The world’s biggest aerospace company and America’s largest exporter employs over 150,000 people directly and supports millions of other jobs across a sprawling global network of suppliers and customers.

It is unequivocally critical to the health of the US economy and the shock waves of its collapse would no doubt reverberate through ecosystems, prompting decades of questions around what we could have done differently – and why didn’t we just step in. 

That being said, as corporates in industries from retail to healthcare teeter on the brink of meltdown, it’s becoming increasingly clear that a taxpayer funded rescue would be the wrong response to Boeing's woes.

What makes this pandemic so devastating, is that it’s unapologetically ripping through pretty much every sector of the economy – battering small, family-run businesses and large multinationals alike – from Frankfurt to Fayetteville and Tokyo to Tacoma.

Airline stocks have endured a fortnight of carnage, but so have many others. Yes, airlines are critical to the functioning of a country, but the collective health of millions of businesses we’ve never even heard of is too.

Last week it emerged that Nikki Haley, Trump’s former ambassador to the UN, was quitting Boeing’s board after less than a year, in opposition to its request for a bailout. “I cannot support a move to lean on the federal government for a stimulus or bailout that prioritises our company over others and relies on taxpayers to guarantee our financial position,” she said in a letter that Boeing later disclosed. “I have long held strong convictions that this is not the role of government.”

Her words may well have been politically motivated (some say she’s a candidate for 2024 and backing a bailout would be a surefire way of alienating potential supporters) but I agree with the apparent sentiment. 

Boeing’s existence might be more important to the economy than the existence of a mid-sized manufacturer of widgets in small town Indiana, but what about the existence of a thousand mid-sized manufacturers of anything in small town anywhere? And how do we quantify the importance of safeguarding individual jobs in a consistent and, crucially, fair way?

Then there’s Boeing’s previous corporate strategy to reflect upon. It’s a champion of stock buybacks and dividend payouts.

Unscrupulous and undeserving

Between the start of 2013 and the beginning 2019 it spent over $17bn on dividends – representing approximately 40pc of its profits – and in excess of $43bn on buying back its own shares.

That’s $60bn channelled into the coffers of shareholders. In a neat example of symmetry that’s exactly the same amount that Boeing is now asking from the government.

With interest rates at rock bottom and cash virtually on tap, share buybacks are generally used to bolster stock prices in the interest of investors.

For Boeing it certainly worked. In March 2019 shares in the company hit an all-time high of just over $440.

Ten days later, the second deadly crash of a brand new Boeing plane in less than six months fired the starting gun for the company’s, initially hesitant and later catastrophic, share price descent. On Friday shares closed at $95 apiece.

They’ve bounced somewhat this week after CEO David Calhoun said that his company would actually be able to survive even without a bailout, but it’s questionable whether they’ll ever get back to last year’s lofty heights. 

I’m no aviation expert, but I’d imagine even the most skilled technician wouldn’t be able to say for certain whether more spending on research and development during that period would have  enhanced aircraft safety and prevented those calamitous crashes.

What I can say though is that a government bailout could quite easily be construed as a gentle balm during a time of need; a heartening pat on the shoulder: “We know you’ve been trying your best so here’s a little stash to keep you bobbing along.”

The wrong message

As we strive to build purpose-led corporations that are unconditionally dedicated to a multi-stakeholder approach, should the government really be endorsing such textbook examples of shareholder primacy? What message does this send? And what precedent are we setting for the corporations and bosses of the future? 

Perhaps an even more fundamental question to consider is whether a bailout would even work. Coronavirus, whilst not strictly the least of Boeing’s concerns, is certainly not its sole worry.

Its 737 Max aircraft have been grounded since those crashes and a drought of orders from China for the 787 Dreamliner has also bruised the group.

 For now, these issues aren’t going away. If the government grants Boeing’s full bailout request, its debt pile would grow to around $100bn according to Bloomberg data.

Servicing that heap, a small portion of which is due to mature later this year, will no doubt be a bitter pill to swallow against the backdrop of the current financial washout and its ensuing mother of a hangover. 

Calhoun this week also told Fox News that he doesn’t actually want the government to take an equity stake in the company. "I want them to support the credit markets, provide liquidity. Allow us to borrow against our future, which we all believe in very strongly and I think our creditors will too,” he said.

Essentially, he wants taxpayer-funded loans. That seemed to please shareholders too, buoying the stock, but let’s think about his possible motivations. Being partly owned by the government could place severe restrictions on things like executive pay and, yes, even share buybacks.

Controversial past

Historically, bailouts have left a bad taste in many mouths. After 2008, much of Main Street felt furious at Wall Street for robbing them of their hard-earned cash. Such public discontent and fresh anti-establishment attitudes wouldn’t help anyone right now.

Personally, I can get behind a creative suggestion from The New York Times’ Andrew Ross Sorkin: the government should provide every US business and self-employed worker a bridge-loan with no interest which would be guaranteed for the duration of the crisis and paid back over five years.

In order to qualify for the loan a company would simply have to guarantee that they would keep employing at least 90pc of their workforce at the same pay level as before the crisis.

Workers laid off in the past two weeks as a result of the crisis would also have to be offered their jobs back. Real job security would encourage people to stay at home which in turn would actually slow the spread of coronavirus and help restore a sense of normality quicker.

This might sound ridiculously idealistic and unthinkably expensive, but rock bottom interest rates make this a brilliant time to borrow.

And don’t forget the US economy is fundamentally in pretty damn good shape too. Unprecedented times famously call for unprecedented measures, and all the better if those measures can teach us valuable lessons for the future. 

Should Trump bail out Boeing? Share your view in the comments below.