Boeing wants a massive bailout from the US Government, but only on its own terms

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Boeing Corporation (NYSE:BA) has been in line with airlines for a bailout from the U.S. government, but the company may end up turning down the government’s offer. Boeing CEO David Calhoun said they do not want the U.S. government to take an equity stake in conjunction with any bailout offered.

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Boeing seeks bailout, but no equity stake

Calhoun told Fox Business that he wants the federal government to support the credit markets and provide liquidity. He urged officials to allow Boeing to borrow against its future. He believes the plane maker has a strong future and that creditors believe it too. If the bailout requires that Boeing provide an equity stake in exchange for assistance, the company may turn it down.

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In a note today, Canaccord Genuity analyst Ken Herbert pointed out that Boeing has been positioning itself for a $60 billion bailout. The company eliminated its dividend, and Calhoun and the chairman of the board will not be taking a salary for the rest of the year. Boeing also ended its share repurchase program. Previously, buybacks had been suspended until at least the 737 MAX aircraft was back in service.

President Trump warned companies from continuing to buy back shares amid the economic fallout from the coronavirus, so it seems the airplane maker has heeded his warning. The steep decline in stock prices could be a major temptation for companies that have been buying back shares, but Trump said he doesn't want to see share repurchases. He wants companies to use the federal aid to keep operations going and support their workers during the economic fallout.

Advocate for the aerospace industry

Herbert also believes Boeing is trying to position itself as the logical advocate for the airplane supply chain. He sees it as best positioned to make sure the aerospace sector receives some form of federal aid as soon as possible. He believes some sort of aid will be announced this week, which should be a positive catalyst for Boeing shares. However, he added that it's unclear how the package will be structured and how much and when the aid will flow into the supply chain.

He noted that in the past, companies that were bailed out after 9/11 and the global financial crisis saw their stocks outperform the market six months, 12 months and two years after their bailouts. However, this time around, he sees more uncertainty, although he does expect federal aid to be a positive catalyst. He also expects there to be significant political pressure on Boeing in connection with any kind of federal bailout.

Why Boeing may reject the bailout offer

In all of the instances of government bailouts he looked at, debt and equity were both parts of the formula. Thus, it stands to reason that Boeing would be required to give the government some equity in exchange for the federal aid. Lawmakers have said they may demand stock, options or warrants as a condition of federal loans.

Calhoun said if the federal government tries to force an equity stake in connection with the aid package, the company may reject it because it has plenty of other options. He told CNBC that there are plenty of options for Boeing in the private markets and elsewhere, but the credit markets must be open.

He said he wants the U.S. government to let Boeing borrow funds and pay interest to the government on those funds, paying the entire principal back as well.