Since the pandemic spread to the United States, virtually every day has brought a cascade of bad news for Boeing. It’s been forced to shutter major manufacturing plants outside of Seattle, then Columbus, then Philadelphia, then Charleston, forcing the world’s largest aerospace company temporarily to halt all final assembly of commercial airplanes. There was a round of voluntary layoffs. Avalon, a plane leasing company, canceled an order of 737 Max jets worth $8.4 billion. Analysts predict other customers could delay or cancel orders.
A board member, former United Nations Ambassador Nikki Haley, resigned in protest over the company’s request for what she called a government “bailout that prioritizes our company over others and relies on taxpayers to guarantee our financial position.” The stock price has slumped to $150 a share as of Thursday, from $440 a year ago.
As conditions deteriorate, Boeing pleaded for an emergency $60 billion infusion of cash from the federal government to save the broader aerospace industry and for the credit markets to open for suppliers.
“What’s the worst possible scenario?” said Ken Herbert, an analyst at Canaccord Genuity. “It’d be hard to write a script that is more detrimental than what they’re going through now.”
Calhoun has expressed optimism the company will make it to the other side of the crisis. “I think we’re going to weather this one and weather it well,” he said last month on Fox Business.
The White House has said it won’t allow Boeing to falter. As the nation’s largest exporter, officials say, it’s not only too big to fail, but it is also a key Pentagon contractor — the maker of F/A-18 Hornets, Apache helicopters, even Air Force One. President Trump has promised to muster the resources of the federal government to save the corporate giant, which employs 150,000 people in the United States and supports another 2.5 million workers at 17,000 suppliers.
Trump said Friday that White House officials would meet with Boeing in coming days to discuss the future. “We can’t let anything happen to Boeing,” he said.
As part of its $2 trillion stimulus package, Congress has carved out $17 billion for national security firms deemed essential, most of it earmarked to save Boeing, officials said.
The government’s emergency aid may not be enough, analysts say, as the behemoth burns through billions of dollars of cash a month, hundreds of planes sit idle on tarmacs across the country, and no new orders for planes come into its factories — which are closed anyway.
“Their product line is in a world of hurt,” aerospace analyst Mike Boyd said.
Calhoun has said the company has $15 billion cash on hand after it drew down a $13.8 billion loan last month, which could see it through months of turbulence. He has said the company will need additional capital and urged lawmakers to ensure credit markets stay open — for Boeing and its supply chain. He has said the company was continuing to pay suppliers and that 70 cents of every dollar it takes in debt would go to its supply chain.
While Boeing has called for government intervention, It also sent mixed signals about its willingness to accept federal assistance.
Calhoun has said the company would reject any deal that would give the government an equity position in the company in exchange for a loan — a requirement the Obama administration set as a condition of the auto industry bailout for GM and Chrysler during the Great Recession.
To tap the $17 billion fund under the law Congress passed, Boeing may have to give up an ownership stake or make other arrangements that might include granting the government options to be purchased later. The law also requires bailout recipients to maintain their employment levels “to the extent practicable” — though Boeing already closed most of its factories indefinitely with no plan for when they would be reopened.
Calhoun told Fox Business he had no interest in the government taking an equity stake and had options elsewhere. “If they force it, we just look at all the other options, and we’ve got plenty of them,” he said.
That concerned lawmakers from Washington state, who urged Calhoun in a letter to “consider utilizing the economic assistance provided by the Cares Act to safeguard thousands of jobs at Boeing in Washington State and across the country.”
The seven members of the state’s congressional delegation wrote they were “especially troubled” by what they perceived to be Calhoun’s reluctance to take government money given that Boeing has shuttered its facilities in the Puget Sound region, affecting some 70,000 workers. They wrote they also were dismayed by the company’s decision to “require employees who are unable to telework to use earned vacation and/or sick leave or to seek unemployment, and implement a vague voluntary layoff program.”
A senior Boeing executive said last week that Calhoun’s comments have been misinterpreted and that the company is looking at several options, including taking government money.
“In the range of options are the money in the stimulus bill and private creditors,” said the senior executive, who spoke on the condition of anonymity to offer candid thoughts on company deliberations. Boeing is actively discussing “what flavor of government liquidity assistance would be most logical and helpful not only to our business but to the industry and our suppliers,” the executive said.
Financial analysts who study Boeing’s business say the company probably could get by for a year or more without government support, even if it didn’t sell another commercial jet. But surviving without government help would require aggressive cost-cutting measures that would be excruciating for Boeing’s workforce, analysts said.
It also would be detrimental to the company’s network of specialized suppliers, many of whom are sustained partially or wholly by orders from Boeing. Wichita-based Spirit AeroSystems began laying off thousands of workers in January before the U.S. outbreak, when Boeing halted production of the 737 Max. Spirit received about half of its revenue from selling jet fuselages to Boeing.
“The market has failed. It will come back — six months, 12 months, 18 months, take your pick,” said Richard Aboulafia, an aerospace analyst at the Teal Group. “But right now, it doesn’t want jets. So the question is either produce jets for a nonfunctioning market or close up shop.”
The International Association of Machinists, a union representing employees at Boeing, urged the company to take the government aid, even if it means giving up autonomy. The union estimates 500,000 aerospace-industry jobs could be at stake, between Boeing and its suppliers.
“Aerospace companies including Boeing should be looking for ways to preserve and protect their workforce,” said IAM District 751 president Jon Holden, whose unit represents roughly 32,000 Boeing employees. “That means utilizing all available means, including loans from the Cares Act.”
The government is looking for still other ways to speed cash to Boeing. The U.S. Air Force confirmed it would release $882 million in payments to Boeing that had been held back in the KC-46 aerial refueling tanker. Boeing’s Arlington-based defense, space and security division also notched several wins on major defense contracts in recent years, including training jets, transport helicopters and aerial refueling drones. It can count on tens of billions of dollars from the Pentagon for those programs over the next several decades.
In the short-term, the Pentagon has worked to accelerate payments to defense contractors and will keep the payments coming even as the virus forced Boeing to close its military production plants outside of Seattle and Philadelphia.
The Navy also awarded Boeing a contract worth $1.5 billion to produce P-8 Poseidon maritime patrol aircraft, though it could take years for Boeing to collect the full amount.
For Calhoun, a veteran corporate executive, Boeing’s dire standing presents a generational challenge that would have stressed his mentor at GE, the legendary CEO Jack Welch. While no one could be fully prepared for the virus’s widespread devastation, friends and colleagues say Calhoun is well suited for the challenge, however daunting.
During his 27-year career at General Electric, he adeptly oversaw the company’s aircraft engines division in the wake of the Sept. 11, 2001, terrorist attacks. Before taking over at Boeing, he was the CEO of Nielsen Holdings, a senior managing director at Blackstone Holdings and served on the board of directors at Caterpillar and Boeing.
Described as a blunt-spoken realist who demands results, he sees leading Boeing as a calling for national service because he has “a clear moral center,” said Kevin Sharer, one of Calhoun’s best friends and the former chief executive of Amgen.
“He’s the opposite of the person who says, ‘I’m new here. Give me six months to get my plan together,’ ” Sharer said. “He has a bias for action but in a thoughtful way.”
If Boeing does accept money from the federal government, Calhoun will strive “to make whatever investment the American people make in Boeing pay off for the American people,” Sharer said.
There could be advantages to having a career financial manager in charge during a financial crisis, analysts said. But some are concerned Calhoun is ill-equipped to fix the broader management problems at the core of Boeing’s difficulties this past year.
Although Calhoun’s predecessor, Dennis Muilenburg, was fired for poor performance late last year, some are concerned Calhoun is too much of an insider.
Calhoun served on Boeing’s board for a decade, including as chairman, at a time when key decisions were being made about the 737 Max. He’s also not an engineer, which could hamper his ability to win trust at the company.
There also is concern that Calhoun too closely mirrors Jim McNerney — another former GE executive and Welch protege — who led Boeing before Muilenburg. Although McNerney’s tenure was wildly successful for Boeing’s stock price, he led aggressive outsourcing measures that infuriated many of the company’s longtime engineers.
“The company has suffered from a very heavy focus on financial concerns and not much more for some years now,” said Aboulafia, the Teal Group analyst. “When things went bad in terms of the relationship between management and engineering, his (Calhoun’s) only action was to blame his immediate predecessor rather than the person who actually put those policies in place.”
As soon as he became CEO, Calhoun sought to bridge a long-standing cultural divide, between the engineers and the financial executives — a move that surprised many given his background in finance, the Boeing senior executive said.
“In the very first days, he said, ‘We need to throw much more support behind the engineering community,’ ” the executive said. “He took steps immediately to shore up that function and to put his personal support behind it. And that’s huge.”
He also has been focused on the company’s troubled Starliner space capsule, which, like the 737 Max, has been beset by software problems. When the test flight in December without any crew members onboard suffered a malfunction that prevented it from completing the mission and docking with the International Space Station, the company was torn over whether it should refly the capsule without a crew or proceed directly to a flight with NASA astronauts onboard.
Boeing decided it couldn’t risk it and will repeat the mission, a decision Calhoun signed off on. But it won’t be cheap. The cost of the investigation into the mishap and the flight will be about $410 million.
That’s the sort of tough medicine Calhoun believes the company needs now, officials said. He was similarly blunt when delivering a message to Boeing employees announcing voluntary layoffs.
“We’re doing everything we can to protect the future of our business,” he wrote.
But he painted a grim picture about what was to come, warning, “we’re in uncharted waters” and “it will take time for the aerospace industry to recover from the crisis. … It’s important we start adjusting to our new reality now.”