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Boeing Extorts Washington for a Bailout, But Equity Holders Should Be Diluted First

Last Updated September 23, 2020 1:40 PM
William Ebbs
Last Updated September 23, 2020 1:40 PM
  • Boeing is strong-arming the federal government for a bailout by threatening layoffs and bankruptcies in its extensive supply chain.
  • This is corporate extortion, and the Trump administration looks to be taking the bait.
  • Boeing should issue more shares and dilute its shareholders instead of asking the government for money. Taxpayers shouldn’t foot the bill for Boeing’s years of mismanagement.

Boeing (NYSE:BA) is begging the federal government for a bailout as the coronavirus pandemic threatens its bloated and corrupt business.

The plane manufacturer is worried that a spate of airline bankruptcies in Europe and Asia will dampen demand for its jets — especially the grounded 737 MAX.

Boeing believes it’s too big to fail. And that is probably why management has run the company into the ground.

Over the last few years, Boeing has blown billions of dollars on share buybacks  and excessive executive compensation while cutting corners on everything from commercial jets to NASA spacecraft. Now, the company wants American taxpayers to foot the bill for its years of mismanagement.

Boeing’s Stockholders are Finally Feeling the Pinch

Boeing’s stockholders are finally feeling the pinch from management’s years of misallocation and incompetence. And the crash is long overdue.

Throughout 2018-2020, Boeing’s stock remained range-bound between $300-400 despite a torrent of bad news that would have sent any other company crashing downwards.

Boeing had remained near all-time-highs despite two fatal crashes and the grounding of its 737 MAX jet. | Data by ycharts 

Now, the coronavirus pandemic has given Boeing’s stock the thrashing it deserved long ago. The company is now trading at levels unseen since 2016 as a massive wave of selling pushes shares near a 52-week low of $101.

The stock is experiencing a well-deserved correction as the coronavirus batters the airline industry. | Data by Ycharts

Why is the Coronavirus Devastating Boeing?

The coronavirus pandemic is having a devastating impact on the travel industry, especially as governments around the world restrict movement and issue travel bans to slow the spread of the deadly virus.

The Trump administration recently issued a blanket ban on Europe,  which follows its ban on visitors from China. And the European Union, in turn, is banning non-essential visitors from outside the continent. 

According to CAPA Center for Aviation, most airlines in the world will go bankrupt by the end of May unless governments intervene.

This is a big problem for Boeing since it relies on airlines to buy the planes it manufactures. Boeing is taking advantage of the situation to strong-arm the federal government into giving it free money. The company has reportedly asked White House and congressional officials for short-term aid for it and its suppliers.

The plane manufacturer threatens layoffs and damage to the hundreds of companies that make up its supply chain if it doesn’t get what it wants.

Boeing states the following:

Near-term access to public and private funds is key for the entire aerospace industry, which has a strong long-term outlook but an “urgent challenge” from the virus.

It goes on to elaborate:

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.

Will Boeing Get the Bailout?

Boeing has a receptive ear with President Trump, who claims he will back the airlines 100%.  But Boeing isn’t an airline. It seems unfair for it, as a manufacturer, to get funds that could have gone to more vulnerable companies that did nothing wrong.

Many are outraged that Boeing, which has spent billions of dollars on unnecessary share buybacks , is trying to force taxpayers to pay for its incompetence.

Peter Schiff, a big proponent of the Austrian school of economics, believes Boeing exploited the Fed’s low interest rates to purchase its overpriced stock. But he concedes that the company will probably get the cash that it is asking for.

Peter Schiff believes Boeing will get its bailout. | Source: Twitter 

Boeing Should Dilute its Stockholders

At $125 per share, Boeing still has a market cap of $73.13 billion . Instead of begging for free money from the government, the company should issue more shares and dilute current shareholders to raise capital.

Boeing has spent billions of dollars buying its own shares and paying excessive compensation to its executives while delivering substandard and dangerous products to its consumers. American taxpayers should not be forced to foot the bill for such reckless and incompetent behavior.

The White House is seeking an $850 billion stimulus package to stabilize the economy amid the coronavirus pandemic.  While the specifics of this proposal are yet to be hashed out, Trump reportedly supports specific financial assistance for Boeing.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.