President Donald Trump made clear Tuesday that the massive economic stimulus package his administration is proposing to deal with the coronavirus crisis will include a multibillion-dollar bailout both for the U.S. airlines and for Boeing.
“Yes, I think we have to protect Boeing,” Trump said. “We have to absolutely help Boeing.”
Boeing said Tuesday it’s asking for “a minimum of $60 billion … for the aerospace manufacturing industry” in a combination of direct taxpayer money and loans from banks backed by government guarantees.
The nation’s America’s aerospace industry supports over 2.5 million jobs and 17,000 suppliers, Boeing said in a statement, and government financial support is “needed to manage the pressure on the aviation sector and the economy as a whole.”
U.S. airlines are also seeking over $50 billion in financial assistance, including grants, tax relief and government-backed loans.
That’s hard to swallow for critics of big business, who point to the billions of dollars in profits both U.S. airlines and Boeing have made over the past decade — profits that management used in good measure to pay tens of millions of dollars to top executives, to juice the stock price with massive share buybacks and to deliver handsome dividends to shareholders.
But even critics of Boeing’s intense focus on rewarding shareholders see little alternative in the current emergency — though they urge that Congress attach conditions to any bailout.
The potential collapse of an industry in which America leads the world, and the destruction of many of the jobs and economic benefits that it creates, is just too dire a consequence to contemplate, said several such critics.
“There’s too much at stake,” said longtime industry analyst Richard Aboulafia of the Teal Group. “There is the risk of collapse.”
“I’ve criticized Boeing for years for giving way too much to investors,” he said. However, he added, the prospect of “chaos from mass unemployment, a collapsed transportation network and even damage to our national security is too overwhelming. Something has to be done.”
“We need to find a way to balance the public interest with the survival of the private sector,” said Aboulafia. “Let’s find a way to come up with acceptable terms and conditions [for the bailout] rather than fulminating against these evil corporations.”
Still, “it’s massively inappropriate to be rewarding investors at this time,” he said. “So let’s think about providing aid and making sure it isn’t diverted to investors.”
Scott Hamilton, founder of Bainbridge Island-based aviation consultancy Leeham.net, agreed.
“I certainly get the objections based on billions of dollars spent on stock buybacks and dividends paid to shareholders,” Hamilton said. “But you can’t unring that bell. That was then and this is now.”
Boeing’s shares have plummeted more than 63% in just the last month as investors flee the stock, afraid that on top of the MAX grounding, the coronavirus will kill its prospects for the foreseeable future. In a regulatory filing Tuesday, the company disclosed that it has fully drawn down a $13.8 billion line of credit set up last month.
Hamilton’s suggested terms for a bailout are that “government assistance should be conditioned on Boeing CEO Dave Calhoun zeroing out his salary” along with the entire Boeing board. All the top executives at the company should see dramatic reductions in their paychecks, he said.
Will front-line workers benefit?
Trade unions representing the workers in the aviation sector have broader goals than just holding back executive pay. They want conditions attached to the bailout that protect front-line workers, from machinists in the factories to pilots flying the planes.
Larry Willis, president of the Transportation Trades Department of the AFL-CIO, which represents 33 labor unions, said he worked on the stimulus package drafted for the airlines after the 9/11 terrorist attacks rocked the aviation sector in 2001.
Back then, he said, the unions pushed for extended unemployment benefits, an extension of health care coverage and preservation of jobs, but were unable to secure any of that in the original bailout. It took 18 months after the attacks to finally get 26 weeks of extended unemployment insurance, he said.
Worse followed. “Most of those air carriers that received assistance eventually went into bankruptcy anyway and used that process to significantly abrogate union contracts, which meant lowering wages and benefits, throwing out defined benefit pension plans and outsourcing work, including catering and aircraft repair work,” Willis said.
Similarly, the government bailout during the 2008 financial crisis was directed to the Wall Street banks. “Mainstream businesses and working men and women were not part of that calculus,” he said.
“This time, we want to make sure conditions are included in whatever stimulus is drafted to protect the jobs and wages of front-line workers,” Willis said.
While everyone will have to make sacrifices, he said, if unions do make concessions in pay to help get through the crisis, agreements should ensure that the contracts snap back to their prior terms after a recovery.
Willis argues that avoiding extended layoffs is essential to ensure an economic recovery after the virus crisis passes.
“We’ve got a lot of expertise in the aviation industry that needs to be protected,” he said. “If you are going to restart the economy and have any hope of not going into a deep recession, you have to have the drivers of the economy ready to turn back on.”
Aviation is one of those drivers.
The specific importance of Boeing to the economy lies in its provision of highly paid manufacturing and engineering jobs, its position as the nation’s largest exporter, and the lead it offers the U.S. in aviation technology for both the civil and military worlds.
And the aviation industry built atop Boeing’s manufacturing of airplanes is a vital part of the modern world’s infrastructure.
The airlines directly employ 750,000 people in the U.S., and according to the industry trade group A4A they support another 10 million indirect jobs through their flight networks that carry most of the nation’s trade, tourism and business travel.
Jon Ostrower, founder of The Air Current aviation news and analysis site, calls Boeing a “strategic asset of the United States.”
Only a few nations in the world build airplanes: the U.S., the European Union, Russia, China, Canada and Brazil. And of those, it’s only the first two, through Boeing and Airbus, that seriously compete to build large jetliners.
This is a rare capability, “the crown jewel” of manufacturing, and an industry “that defines a nation’s influence globally,” said Ostrower.
The notion that the U.S. would allow this aviation prowess to shrink significantly is inconceivable, he said. And it’s about more than economics. Aviation connects the world and makes travel across the globe a daily reality.
“Aviation gives us the ability to see the world and how other people live their lives,” said Ostrower. “Without it, the world would be a sadder, less interesting place.”
Aboulafia points out that Boeing has endured the substantial financial challenge of the 737 MAX grounding without needing outside aid.
“But this coronavirus threat on top of that, a completely different event from anything the industry has ever seen, this removes any doubt that they will need help,” he said.
On a day when the stock market generally recovered a little from its recent sharp drops, Boeing closed down more than 4% at $124.14.