The Boeing (NYSE:BA) stock chart looks like the flight path of a crashing jet.
Since the start of the year, BA stock has lost about 70% of its value. It was due to open below $100 per share on March 19 after trading at nearly $350 as recently as Feb. 12.
Boeing isn’t growing pot like Tilray (NASDAQ:TLRY). Boeing makes airplanes. But the coronavirus from China hit while the company was still struggling with its 737-MAX scandal. Now, despite its being the biggest contributor to U.S. exports, past stock buybacks have generated enormous opposition.
Boeing plans to draw down $13 billion in loans received in January, much earlier than expected. Even supporters of the company, like TV analyst Jim Cramer, want the government to take an equity stake as part of its price.
What Boeing Needs
Boeing wants $60 billion in liquidity, including loan guarantees. A company statement issued March 18 said that “2.5 million jobs and 17,000 suppliers” are at risk, an overt comparison to the General Motors (NYSE:GM) bailout of a decade ago. Boeing insists that “ready short term access to public and private liquidity” can be a bridge to recovery for the aerospace industry.
The Administration wants to get this aid to Boeing quickly. The President says, “We have to protect Boeing.” But the political backdrop is nothing like it was in 2009. This is true even though Boeing has given more to Democrats in this political cycle than Republicans, reversing a decade-long pattern.
Democrats want to attach conditions to the aid. They want the company to commit to reducing pollution. Flight shaming of celebrities has become a thing. Other critics point to Boeing’s $40 billion in stock buybacks over the last seven years, money that could have been put aside or invested in operations.
How We Got Here
Before two 737-MAX planes crashed in 2018 and 2019, with investigators finding Boeing software at fault, BA stock was priced around $350 per share. And it had a $1.71 per share dividend that yielded under 2%. Now that dividend pays 8.22%, but don’t touch it. Analysts say the payout is likely to be canceled soon.
Boeing has continued to assemble jets even as other economic sectors go on lockdown. Employees call its assembly plant a vector for the virus, but fear of losing a paycheck is keeping them from acting.
Analysts have tried to defend the company. Robert Epstein of Bank of America still sees $23 billion of liquidity on the balance sheet. That could jump to $32 billion if a pending merger with Embraer of Brazil were canceled. Authorities there green-lit it for a second time on March 18.
The Bottom Line on BA Stock
Boeing will get a bailout. Its supply chain is as important to the economy as GM’s was in 2009. That’s why even GM’s foreign competitors supported its bailout.
In addition to being America’s largest exporter, Boeing is the second-largest defense contractor, behind only Lockheed-Martin (NYSE:LMT).
Boeing doesn’t need the money right away. But it needs the confidence having the money would provide. Its commercial jet business is likely to be locked down for a month or more, after Detroit’s big three automakers announced they will shut down over the coronavirus.
Boeing looks like a bargain, but investors should not jump in until they have some visibility. How much equity might the government take? What damage would loans inflict on Boeing’s balance sheet? What would be the cost of regulatory oversight?
Until these questions are answered, BA stock will continue to fall. Don’t pick up the falling knife too early.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
