Government bailouts have been a target of controversy since big banks were deemed “too big to fail” back in 2008. Yet despite the ethical considerations, anyone holding Boeing (NYSE:BA) stock probably wouldn’t mind too much if the company received federal funds.
Like it or not, financial “relief” packages have saved ailing companies from Chapter 11 on a number of occasions. For shareholders, it might seem that any federal funding should be welcomed with open arms by a troubled company like Boeing.
But as experienced market participants know, life is ever full of surprises. The idea of a struggling company refusing bailout funds might seem absurd at first blush. On the other hand, maybe it’s for the best. Could Boeing’s bold move put the stock back on track?
The Downward Spiral
For anyone who didn’t get the memo, Boeing stock hasn’t exactly been flying high for the past year and a half. Peaking at the lofty $440 level back in February of 2019, the shares took at $100 haircut over the next year.
And that was before the spread of the novel coronavirus decimated air-travel demand. Now Boeing stock was barely maintaining the $130 level.
This is a company in need of a lifeline, and fast. It could be months before the demand for air travel, and hence the need to build new planes, picks up again.
A dismal first quarter underscored just how far this aerospace giant has fallen. Shockingly, Boeing managed to lose $1.35 billion, or $1.70 per share, during that quarter. That’s 9 cents per share per share worse than what the analyst community had projected. Moreover, Boeing’s quarterly revenue was $400 million less than what was expected.
In case that wasn’t enough to worry shareholders, Boeing also eliminated the company’s dividend payouts. Plus, global leasing company Avolon canceled its commitments to order 737 MAX planes.
As we would expect according to the efficient market theory, all of the foregoing problems have already been priced into Boeing stock. Still, it’s understandable if traders are concerned about the company’s fiscal woes. Maybe it’s time for the government (i.e., our taxpayer dollars) to come to the rescue. Or is there another way?
Just Saying No
Incredible as it may seem, Boeing recently declined to seek a government-funded bailout package. Instead, the company sought funding from the private sector in the form of $25 billion in bond sales.
According to Boeing’s official statement on the matter, “as a result of the response, and pending the closure of this transaction expected Monday, May 4, we do not plan to seek additional funding through the capital markets or the U.S. government options at this time.”
From an ethical standpoint, some people might commend Boeing for identifying an alternative to dependence on taxpayer-funded bailout money. More practical-minded traders, however, will likely choose to focus on whether Boeing’s alternative funding method is fiscally savvy.
At the very least, we can conclude with confidence that the private-funding method will likely come with fewer strings attached. With the public wary of government bailouts nowadays, politicians will, in all probability, place heavy demands on taxpayer-funded corporate bailout recipients.
Through the bond offering, Boeing managed to sidestep all of that while potentially securing the funding it so desperately needs. And, as Boeing stated, “The robust demand for the offering reflects strong support for the long-term strength of Boeing and the aviation industry.”
That might sound like typical press-release talk, but there’s merit to Boeing’s take on the debt offering. It shows that even during the worst of time, investors are willing to bet on the company’s ability to weather the fiscal storm.
The Takeaway on Boeing Stock
If you’d like to vote with your investing capital on a company that actually said no to government bailout money, consider a position in Boeing stock. Or, just buy the shares because it’s an aerospace-sector giant that plenty of investors still believe in.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.