Shares of commercial aerospace giant
were surging for a second day on Tuesday after CEO Dave Calhoun said he wasn’t willing to give the U.S. government stock in return for a bailout.
“I don’t have a need for an equity stake,” Calhoun said in a Fox Business interview. “If they forced it, we’d just look at all the other options, and we have got plenty.”
That means shareholders don’t have to worry about dilution, and shares were up 12% Tuesday afternoon. During the financial crisis, car companies, banks and insurance firms gave the government equity in exchange for bailout funds.
The specter of a bailout looms large for aviation investors. Global air traffic has been decimated by the virus outbreak, sending air travel down by more than 70%. The impact of Covid-19 on company cash flow is significant.
Recent developments, including Monday’s announcement of a production halt at Boeing’s Puget sound operations, didn’t change the opinion of anyone on Wall Street about the company’s predicament.
“The effect of the shutdown on the company’s earnings, cash flow, and liquidity will be limited if the halt doesn’t extend materially beyond two weeks,” S&P debt analyst Christopher Denicolo wrote in a Monday evening research report. “Boeing’s 2020 earnings and cash flow will already likely be very weak due to the continuing MAX grounding and would decline further if it receives material order deferrals or cancellations due to the coronavirus.”
Boeing management thinks it can return the 737 MAX—grounded since mid-March 2019—to commercial service by mid-2020.
“Considering the impact Covid-19 is having in the state of Washington, we would not be surprised if the Boeing facilities were shut for a longer period,” Canaccord Genuity analyst Ken Herbert said in a Tuesday research note. “While the demand environment remains the key risk for the aerospace cycle, this move does add the potential for further disruption into the supply chain.”
The aerospace sector was riding Boeing’s coat tails on Tuesday, up about 13%. Supplier stocks that Barron’s tracks have been hammered, down 50% year to date, worse than the drops of the
Dow Jones Industrial Average.
Boeing stock, despite a 23% two-day rise, remains down nearly 70% from its all time high of about $422 set in early 2019.
Boeing isn’t alone in halting production.
(AIR.France) is also halting production in some French locations to sanitize facilities. France, along with five other countries, have more than 20,000 confirmed Covid-19 cases.
Write to Al Root at firstname.lastname@example.org