Boeing said to seek $20B in aid from stimulus package

Boeing Co. is seeking tens of billions of dollars in U.S. government aid for itself and its suppliers as the planemaker works to shore up the cash needed to weather the coronavirus crisis, people familiar with the matter said.

The discussions encompass a mix of federal financial help such as direct assistance and loan guarantees, the people said, declining to provide additional details. The company is pushing for more than $20 billion as the White House prepares stimulus package of up to $1.2 trillion, said one of the people, who asked not to be named because the talks are private.

Boeing’s bailout push won an enthusiastic endorsement from President Donald Trump.

“We have to protect Boeing, we have to help Boeing,” he told reporters Tuesday.

But the plea for help from a company once flush with cash underscored the strain on the aviation industry as it grapples with its deepest crisis in decades. With the pandemic’s duration still unknown, talk is shifting to dire questions like whether the U.S. aerospace giant is too big to fail.

“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.”

Boeing is reeling not only from the collapse in air travel triggered by the coronavirus outbreak but from last year’s grounding of its 737 Max jets after two deadly crashes, as well. The talks are unfolding just days after Boeing drew down a $13.8 billion loan to bolster its reserves.

But any bailout 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 plane maker would default on its obligations in the next five years, according to data compiled by Bloomberg.

“Until global passenger traffic resumes to normal levels, we’re taking steps to manage the pressure on our business,” Boeing said in a statement late Monday, without disclosing details of the aid it’s seeking.

“Ready 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,” the company said.

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 cash 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 plane maker 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 Friday.

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.