You see the irony, right? That the things Boeing is doing that seem designed to help its stock price could instead end up hurting the company?
Okay, now, let me show you what’s been going on with this once-high-flying aerospace company. (Yes, you can groan now.)
From the start of 2015 through April of last year, when it decided to stop using its dwindling cash reserves for share repurchases, Boeing spent about $34.6 billion to buy about 184.4 million of its own shares.
At Thursday afternoon’s price of about $128.65 as I write this, those shares were worth only about $23.7 billion. That’s a $10.5 billion hole.
(In 2015, according to its SEC filings, Boeing bought 47,391,861 shares for $6.751 billion: in 2016, 55,849,082 shares for $7.001 billion; 2017, 46,859,184 for $9.236 billion; 2018, 26,806,974 for $9.000 billion; and in 2019, 7,529,437 shares for $2.651 billion.)
This isn’t the time or place to revisit the issue of whether companies should be buying their own stock in the market, a practice that puts upward pressure on their stocks’ price by simultaneously adding a big buyer and shrinking the number of available shares.
Let’s just look at facts. And the fact is that Boeing paid an average of about $187.80 a share for stock currently selling for about a third less than that. The company’s top executives and board of directors are paid to get things like that right, not to get them wrong.
Sure, you can blame part of the share price decline on the totally unpredictable covid-19 outbreak, which has devastated air travel and crippled Boeing’s airline customers.
But the numbers are the numbers. And Boeing, whose stock was down 62 percent for the year through Wednesday, was already in trouble of its own making pre-covid-19 because of the 2018 and 2019 crashes of its 737 Max plane that killed a total of 346 people.
Now, to the debt issue, which consists of seven securities with maturities ranging from 3 to 40 years and carries an average interest rate of 5.35 percent, producing an interest bill of $1.336 billion a year.
The company declined to answer my question about why it raised money in the market rather than seeking one of the zillion bailout loans that various arms of the federal government have been making available.
So I’ll rely on what Boeing chief executive David Calhoun said in a Fox Business Network interview last month: that Boeing wouldn’t take government money if it had to give taxpayers an ownership stake as part of the deal. “I have no need for an equity stake,” Calhoun said. “If they forced it, we’d just look at all the other options, and we have got plenty.”
But you have to wonder if Boeing shareholders are better off with this deal than they would have been with a bailout loan.
Not only is the company on the hook for 10 digits of annual interest — a lot of money during these ultra-low-interest-rate days — but it could end up paying even more.
That’s because the securities, which carried the lowest investment-grade rating there is, have an unusual provision that will boost Boeing’s interest cost should its credit rating be downgraded further.
If Boeing’s rating falls a notch, it would cost Boeing an extra 0.25 percent of annual interest, or $62.5 million a year. Should it fall four notches, it would cost an additional 1 percent, or $250 million.
Boeing declined to tell me why this unusual provision is in the issue. I think it’s bait to lure debt purchasers by offering them an upside of sorts if Boeing’s finances continue to deteriorate.
Of course, if Boeing ends up having to pay this extra interest, that would generate all sorts of bad media coverage and additional problems.
As a U.S. taxpayer, I’m happy that Boeing raised money on its own in the financial markets rather than lining up for a bailout loan that would have put taxpayers at risk and given us a stake in Boeing’s upside.
I suspect that in the long run, we taxpayers will be better off than if we’d made a bailout loan deal with Boeing. Which would mean that Boeing shareholders, whom the company’s management is trying to help by going it alone, will be worse off.
Taxpayers benefiting at the expense of Boeing’s shareholders? That would be one of the greatest ironies of all.