The Bailout Bonanza is Back! (Pt 3: Boeing Goes Boing Like a Bad Check)
Boeing is a prime example of bailouts going bonkers. It flew to the government’s fuel pumps fast like a jet plane to beg the government for relief on the basis that the airline industry was disproportionately hit by something no one could see coming.
While that much is true, we all know Boeing was proportionately hit before the Coronacrisis for problems it created for itself because of its own greed. If it weren’t already in the ICU for tripping over its own wingtips, it might merit some kind of bailout to get it through an event that couldn’t be helped (for the sake of the American workers). Had it never wounded itself with its own greed, it could fly above this storm fine.
Had it also never given its own shareholders about $50 billion in bonanza buybacks, it could get through this viral event on its own even in its present wrecked state! Interestingly, the amount of total Airline bailouts Boeing is lobbying for on behalf of itself and its friends at $60 billion isn’t that far from the amount Boeing could pay on behalf of the whole industry with its own buybacks alone! Boeing could have single-handedly saved its entire industry right now by just not doing buybacks to launch its stocks into orbit!
And that’s the main point not to lose sight of here.
I’m glad to see some of television’s big babbling heads are already responding with statements roughly like, “Hold it! Why should you get a taxpayer-funded bailout when you’ve distributed billions from your cash supply to shareholders through buybacks, which is cash you could be using to get through these times if you hadn’t used it all to make shareholders rich?”
Here is an obvious example of a once-great American corporation that made some truly deplorable decisions before the coronavirus hit by putting profits for shareholders ahead of human lives. Even its own Dreamliner engineers were documented telling their families things like, “Don’t ride in this plane.” Boeing ignored their concerns. With the Max, it smooth-talked the concerns of pilots. It missed the details it should have learned in the first devastating plane crash because it was covering for itself. So, it had another total-loss crash. That happened because it redesigned an old airframe over and over for heavier use for decades to avoid the tougher FAA approval process required for ground-up design, and it tried to correct for the resulting shortcomings with a software fix. Now, it wants to exploit a viral pandemic as cover to save itself. To me, that’s a long corrupt chain of irresponsible management, whether it broke laws or not. It’s morally corrupt. It’s greed.
But that is not bad enough. These guys are so arrogant they’re actually telling the government what the terms of their rescue need to look like!
Beggars, and those demanding bailouts, can not only be choosers, but can dictate under what terms they are bailed out…. Many have asked what form the Boeing bailout will take, and whether the US taxpayers will also be entitled to some or all of the upside in the company they will soon be asked to bailout. In other words, will the US get an equity stake?
We got the answer moments ago, when the company’s new CEO Dave Calhoun confirmed that the disgraced airplane maker – which until recently was best known for making airplanes that were “designed by clowns, who in turn are supervised by monkeys” … does not want the U.S. government to take a stake even as the planemaker seeks assistance to grapple with effects from the new coronavirus.
“I don’t have a need for an equity stake,” Calhoun said in an interview TuesdayZero Hedge
Well, of course, he doesn’t! What an arrogant oinker.
In other words, “We just need your money; we don’t need you to get any share of later profits for helping us or any control over how your money is spent. Just money will be fine.”
Then, as if it’s going to hurt my or your feelings any, he added, regarding the government’s questions about getting a stake for taxpayers if it bails out the company,
“If they force it, we just look at all the other options and we’ve got plenty of them.”
Well, great, Buddy! Go for it! If you’ve got other options, why are you begging off taxpayers? Get the heck out the capitol doors, and don’t let them hit you on your curly tail on the way out.
As Zero Hedge responds,
What Boeing really wants is to repackage a bailout with no loans and lots of grants (i.e., direct investments) as merely “providing liquidity.”
Fortunately, some lawmakers are pushing back:
As I just reported on @CNBC — Lawmakers are wary of bailing out Boeing, comparing it to AIG, a company that required government rescue only because of its own risky decisions.— Kayla Tausche (@kaylatausche) March 19, 2020
Based on current thinking, WH would have to make an extremely compelling case to change minds.
Here we are, back to AIG-sized bailouts. It’s the Great Recession all over, only deeper.
I have a little aid package for them. It’s called Chapter 11. Sell all outstanding stock necessary to pay off the company’s debts. Start with all of Calhoun’s shares, and then work your way down the tiers from there until you have all you need to pay off all company debt. That’s called bankruptcy, and it is capitalism’s way of making good for creditors and keeping employees at work building useful products for America and the world while management gets to spiral screaming down the drain of the Great White Porcelain Throne.
Wolf Richter explains how smoothly that process works when corporations fail to convince their pocket politicians to bail them out:
Under the supervision of the Court, the company would be restructured, with creditors getting the company, and with shareholders likely getting wiped out.
Boeing would continue to operate throughout, and afterwards emerge as a stronger company with less debt, and hopefully an entirely new executive suite and board that are hostile to share buybacks and won’t give in to the heinous clamoring by Wall Street for them.
No one could foresee the arrival of the coronavirus and what it would do to US industry. I get that. But there is always some crisis in the future, and companies need to prepare for them to have the resources to deal with them….
The solution has already been finely tuned in the US: Delta, United, American, and other airlines already went through chapter 11 bankruptcies. They work. The airlines continued to operate in a manner where passengers couldn’t tell the difference. The airlines were essentially turned over to creditors and restructured. When they emerged from bankruptcy, they issued new shares to new shareholders, and in most cases, the old shares became worthless. The new airlines emerged as stronger companies – until they started blowing it with their share buybacks.
Wolf synopsizes the entire bailout history succinctly:
Share buybacks were considered a form of market manipulation and were illegal under SEC rules until 1982…. Once corporations figured out that no one … was auditing anything, share buybacks exploded. And they’ve have been hyped endlessly by Wall Street…. $4.5 trillion in cash that was wasted, blown, and incinerated on share buybacks since 2012 for the sole purpose of enriching shareholders is now sorely missing from corporate balance sheets…. And the record amount of corporate debt … that has piled up … has become the Fed’s number one concern as trigger of the next financial crisis. So here we are…. “On too many occasions, companies doing buybacks have failed to make the long-term investments in innovation or their workforce that our economy so badly needs,” SEC Commissioner Jackson pointed out. And he fretted whether the existing rules “can protect investors, workers, and communities from the torrent of corporate trading dominating today’s markets….” Enriching shareholders is the number one goal no matter what the risks. These shareholders are also the very corporate executives and board members that make the buyback decisions. And when it hits the fan, there is always the taxpayer or the Fed to bail out those shareholders, the thinking goes. But this type of thinking is heinous…. The eventual costs of enriching shareholders recklessly in a way that used to be illegal must not be inflicted on taxpayers via a government bailout…. In other words, companies that buy back their owns shares must be permanently disqualified for bailouts.
Do you think maybe it’s time to stop these hijackers on the runway before they escape into the friendly skies?
The bailout bigwigs
Krackhead Kudlow, Trump’s chief economic advisor, thinks these corporations are benevolent and indicates the US is up to all of this in exchange for a stake in the company. Of course Lunatic Larry also told the following quaint story to show how generous and patriotic big corporations are being in this crisis, perhaps to smooth over the contemplated bailouts:
“They might even ask them to do it on a voluntary basis, for civic & patriotic reasons” — Larry Kudlow just tried to tell a feel-good story on Fox News about how a major car company plans to call furloughed workers back to the factory to make ventilators without compensation 😳 pic.twitter.com/5iZfS5X0qi— Aaron Rupar (@atrupar) March 18, 2020
That is so dang nice of the big boys! Asking their employees to come back on a volunteer basis and risk infecting each other without pay so that can make ventilators to help save the rest of us from getting contaminated. Now, that is true corporate generosity. The amazing thing is that this sycophant can share it as a feel-good story to exemplify the charitable nature of our biggest corporations. In Lethargic Larry’s blinkin’ defense, I notice he closes his eyes a lot while talking, so he might actually have been asleep and didn’t know what he was saying.
The view from 30,000
Granted, the coronavirus is the proximate cause for corporate collapse, but it is only one cause because the bigger picture is that the owners of these same corporations milked all the company’s reserves and exploited their lines of emergency credit just to get rich quicker.
These could be self-preserving, self-determined companies that exemplify the American pioneer spirit of independence, free of government “interference,” instead of groveling socialists! But they aren’t. They could be using their great strength to actually help society in its present hour of need by taking care of their loyal employees (and, therefore meriting loyalty), instead of acting like begging Soviets searching for corporate welfare! But they aren’t! They are shells run by shills looking for even more selfish gains during our nation’s time of greatest need.
Many big US corporations are run by leaders who are all-capitalist with their profits but all-socialist with their losses.
Opines David Stockman, who was President Reagan’s outspokenly pro-capitalist budget director,
The nerve of it is a wonder to behold. The US airline industry has spent a decade shoving itself into harm’s way by strip-mining their balance sheets to fund share buybacks and goose top executive stock options.
For crying out loud – the reckless irresponsibility of it is mind-boggling. That’s because for decades upon decades this has been a highly cyclical industry – vulnerable to global dislocations caused by recessions, storms, wars, terror and more. Accordingly, airline companies absolutely need deep equity balance sheets and ample standby liquidity, even at the expense of short-term earnings.Contra Corner
That would be the prudent way to manage a company. It would be the way companies were managed back when Stockman was a young man or when I was; but it’s certainly not the way long-term greed for short-term gains works today.
Boeing execs have given themselves and their fellow shareholders as much as Airlines have cummulatively. Wolf Richter put out a nice little set of charts to show how deeply airlines execs. have been putting their hands into the company cookie jar to pull out something for themselves and their fellow shareholders:
Identical twins with each one just about matching their current beggarly twin’s needs. So, Boeing, the biggest beggar and the least deserving, is looking to get its fist into the airline industry bailouts after giving itself more in stock buybacks than four of the very large airlines combined! And Calhoun does this with a straight face, as if it’s a reasonable request! And he’s actually getting a hearing.
When you are rich and run a really, REALLY big company, aren’t you supposed to be …
- Really smart? (Like you know to prepare for worst-case scenarios.)
- Really big? (Like big enough to carry big losses on your shoulders if you take big risks to pay yourself really, REALLY big money.)
I thought that was why you make the big bucks. Isn’t the risk of losing your investment part of being an investor? Did I miss something in high school economics? I say, take all the shareholders out to bankruptcy’s back ally and school them in a few basic facts of life. It would be delightful to watch the feeding frenzy when the common shareholders sue the executives and preferred share-holding board members for bringing ruin to the company by building planes filled with loose-floating, shiny-metal, wire-cutting shards inside the fuselage panels and wings and fuel tanks. But that’s just what I think.
Ron Epstein, an analyst with Bank of America Corp., addressed my last thought with clients:
“The 737 Max program could be especially hard hit due to its own idiosyncratic circumstances.”Seattle Times
Those would be the idiosyncrasies like planes built on a sixty-year-old frame design that likes to fly toward the ground with metal scraps rattling around inside. Yes, I’m sure that decrepit program might well be finished off by this viral infection because we know the coronavirus mostly only finishes off the old and infirm anyway.
Said Boeing, most auspiciously,
We appreciate how the administration and Congress are engaging with all elements of the aviation industry during this difficult time.
I’m sure the administration and congress are engaging more intently with Calhoun than with me! That’s what the big campaign checks are for — the prudent and leveraged way of setting aside corporate funds in good times to have something to lean on in bad. That’s how these guys set money aside for a rainy day. Store it in a politician.
President Donald Trump earlier said that the U.S. government would “back the airlines 100%”
I thought this part was the most revealing of all from the 30,000-foot view:
Whether Boeing will need to take additional measures, such as slashing the dividend, will depend on the length and severity of the outbreak….
Oh, so, cutting shareholder dividends is the last step after seeking bailouts and only if things drag on long enough to finally become necessary. So, what you’re really supporting as a taxpayer if the Boeing bailout is approved this week is the executives’ all-important need to maintain dividends through the Coronacrisis!
That’s the real view you didn’t want to miss!
Taken for a ride on the private jet
Boeing isn’t the only aerospace company to bounce onto the bailout bandwagon. The private-jet industry, whose clients are mostly big corporate CEOs, is also begging for taxpayer assistance. (Gotta keep those fat butts flying somehow. Pardon me for holding back.)
Private jet industry — the transportation of choice for the wealthy — asks for bailout funding
The National Business Aviation Association sent a joint letter with other industry groups to congressional leaders saying private-jet companies should be included in any airline or aviation bailout….. The call for aid comes even as many private jet companies say sales are strong as wealthy flyers avoid commercial flights because of coronavirus.CNBC
“Pigs in Space” — new movie out about high-flying squealers in a space of their own.
A bailout for the private jet industry would likely add to a political and populist backlash emerging against government funding for companies in the wake of the coronavirus losses.
I certainly hope so!
Time to get your back up
This backlash needs to become all-out rage last week because the government bailouts began shaping up immediately. The rinse-and-repeat of the failed plans of the past decade’s Great Recovery effort have all been instantly and fully revived by Fed and Feds — far more than I’ve been able to report because I can’t research and write fast enough to keep up with the bailout flood.
So, people better start getting extremely angry in a hurry. Republicans actually refused to put limits on buyouts and dividends in their first bailout package, and that’s why Democrat’s flunked it. That was because good ol’ Mitch McYurtle didn’t think it was right to curb the right to bailouts by requiring taxpayer money not be spent on dividends and buybacks! After all, who is the government to tell these wise managers how to best manage their use of taxpayer money?
Republican voters need to become outraged at their chosen leaders and smack them down hard for being so stupid until those leaders don’t dare to breath a word about aid that comes without buyback and dividend restrictions. Better yet, no corporate bailouts at all. Learn to have money on hand for tough times, like you should have known to do, or turn the keys to the company jets over to other pilots.
If you’re a small, private company owner, the first thing that gets eaten in hard times is your profits. You don’t have any right under true capitalism to profits during hard times. If you can make them on you own, great; but you don’t have a right to make them. Many small, private companies are struggling; but if they get government assistance, it should only be to the level they need to stay in business through those times, not at a level that will keep them getting rich!
Likewise for big corporations. Since dividends are owner profits, fair and square, absolutely no dividends, buybacks or bonuses to big corporations that get bailouts. If they don’t like it, go elsewhere! They are in no position to dictate terms with their hands out … reaching into your pockets. Republican leadership is completely sold out to the rich. (Don’t worry, I promise I’ll give the Democrats equal time with the lash on this as needed.)
Why do our government leaders act like they don’t dare set terms Big Corporate might not take? Do they think, if these companies really need these bailouts to survive, they’re going to opt not to take them because they prefer to just die? The Donald prides himself in being the Great Negotiator, so let’s see him be tough on a slam-dunk. (There is nothing to negotiate.) If we give you anything, these are the terms. If you prefer to die, we have bankruptcy courts to save the employees and creditors.
“It’s hard to imagine anything worse,” said Dean Baker, senior economist at the Center for Economic Policy, who has studied and written extensively on government bailouts. “Putting up public money to support an industry that serves the rich would be hard to justify. It’s absurd.”
It certainly is absurd, but it’s going to happen if we don’t light up the phones in Washington to express our outrage that such nonsense is even being considered. If we don’t become fighters and light up something, we will deserve to watch the rich get richer on the our dime and forever hold our peace. It’s time to get active. Let outrage light our fire — especially if we are confined to home by the coronavirus. Use the time well.
Now, I told you Democrats are going to get equal time from me, and I’m going to let Mitch McConnell be the one to give it:
Senate Majority Leader Mitch McConnell slams Democrats over delay in coronavirus relief bill: “Are you kidding me? This is the moment to debate new regulations that have nothing whatsoever to do with this crisis? That’s what they’re up to over there.” https://t.co/6rWzHE7qur pic.twitter.com/zDOA1wjBc8— ABC News Politics (@ABCPolitics) March 23, 2020
Mitch, of course, leaves out all the ways he’s doing his best to bailout the rich from their own greed by using the pretense that it is about saving the little guy, not saving bailouts and dividends and bonuses. However, this is certainly not the time for Democrats to be expanding government corporate welfare by paying for new industries, such as solar startups, that cannot fund their risky venture in the commercial finance world. We can’t afford to help save the companies we already have, much less fund new ones.
Let’s not forget we already have a debt that, if stacked as dollar bills, will reach to the moon and back more than twice with enough left over for another one-way trip to the moon; and the annual deficit will reach a quarter of the way to moon. Now we’re tripling that.
Adding money for startups, too, is as absurd as bailing out private jet manufacturers. This isn’t a time for the Green New Deal to put forward its wishlist and hold the nation hostage to funding it! So, Democrats, get busy and call your elected politicians, too, and tell them they had better not dare politicize this, but just focus on what is needed now.
In case anyone needs an outrage booster:
In order to quell public outrage, the Federal Reserve put a fake limit on its bailout programs as window dressing for the public when it said that aided institutions that enter a phase where they cannot even pay interests on their Fed bailout loan will not be allowed during that phase to conduct buybacks or pay out dividends.
What a fraud! The Fed should require that NO company receiving ANY aid is allowed to give out dividends or do buybacks throughout until they get all the aid paid back! And for a year beyond.
If any of this financial institutions or manufacturers or other corporations prefer to die without the regulated aid, let them! One word: organized bankruptcy. They chose it. If they don’t die without the aid, they didn’t need it in the first place.
Rather than write numerous articles on all the bailouts, here’s a list for anyone who wants to know who some of the big ones are: