According to Adam Pilarski, a longtime aviation analyst with the consulting firm Avitas, Boeing is reluctant to have a government guarantee, because they do not want the government to tell them how to run their business.
Sputnik: How would you assess Boeing's decision to reject the idea of a government stake in the company as a condition for receiving aid?
Adam Pilarski: Any time you request help you are trying to have the most benign conditions that you can think of. So, if some kids grow up and they run out of money, they want their parents to help them. It is an example - when kids come back home, they want their parents to provide them a place to live for free. But usually there are some conditions. Instead of being by yourself, suddenly you have to come home at a reasonable time and you cannot have visitors without your parents' approval.
Same thing with a government guarantee. You are to some degree saying: "we are not sufficiently grown up and somebody has to support us". In this case, at any time, the government will provide money and there will be conditions with it - some are financial. There’s a loan, and there’s an interest rate. But there may be other conditions - for example, the government very clearly indicated that any decisions about layoffs would have to be approved by the government. You will get some money if you promise not to lay people off. Which means we, the government, will tell you how to run your business - and businesses don't like that.
Sputnik: Why do you think Boeing is choosing an independent strategy?
Adam Pilarski: From the beginning, Dave Calhoun, the CEO, said: "we don't want money when the government will tell us how to run our business". The government, of course, is very much interested in helping Boeing as a major corporation. It's also an election year - coming soon in November - so bigger unemployment is not good. But also, this is something that you probably don't immediately think about, is the government is also providing airlines [with] support. Right now, United basically said they’ll be furloughing. They’re telling people - don’t come to work. But if there’s more work, we may call you back. But United dropped over 90 percent of passengers; people are not flying. United right now has more pilots than passengers, on a daily basis.
The fact that the government is providing money for airlines is helping Boeing, because eventually people will start flying again. And Boeing, from the beginning, was very clear about saying: "we do not want to accept conditions". Conditions, you don’t know - if you are Boeing and if you get money from the government or a loan with possible conditions, any time somebody buys bonds or gives you money, there is a provision that says what will happen if they don't repay the loan. Often, if you don't repay the loan, you are giving away some ownership of the company. Obviously, this is not what the government wants. This is not what Boeing wants. This is not what airlines want. They don't want to be nationalised. They don't want to be part of the government. They don't want government ownership. They want to repay the money. But if they don't - what would happen? Boeing from the beginning was saying: "no, we don't like that. We don't want - in case we don't repay the money - to be in a situation where you become part of our ownership and you will tell us what to do".
So going back to the election issue - currently the government is very unpredictable, we’d never know what will happen tomorrow, because the "great leader" wakes up and we have to look at a tweet and see what did he say today? What is happening today? And Bernie Sanders is not running. But, for example, you could have a more left-leaning new government that would want to tell Boeing how to run their business, for example, to produce more environmentally friendly planes.
Obviously, the government doesn't say anything like this today, but if you were Boeing and you owe somebody a lot of money, it's a potential danger that you want to avoid. Luckily, the capital markets improved recently and also, again, because the government is supporting airlines - and that's positive for Boeing - because, eventually we all believe people will continue to fly. All of this led Boeing to say: "you know what? We can go and get private money. We can sell bonds - and they were quite successful. They were oversubscribed. They wanted to raise may be10-15 billion dollars and there was demand for up to 70 billion. So they decided 25. They raised it with no trouble.
Those who buy the bonds have to have, again, some guarantees. So there are provisions [for] what will happen if Boeing will stall. Not just if they don’t repay, but what will happen if their credit rating goes down. Because they are still marginally credible - they are not in the junk bond, yet. But if they were to go there, then they would have to pay more money. These are not super cheap bonds. It will cost them money. But again, it's a better thing… Going back to our example - you’re a teenager, you finished college, you are ready to start on your own. You could move back with your parents and have a lot of potential rules: "no, I don't want you to date this boy, come back earlier, eat healthier", or whatever. If you need some money, if you can get it from a bank, where there's no personal involvement - that’s much better. So, this is the way Boeing went. Luckily for them, they managed to raise funds, there is enough money available and they are paying good money for it, but they are happy. This is a commercial deal.
Sputnik: Warren Buffett’s Berkshire Hathaway Inc. has dumped its stakes in the four largest US airlines, including Boeing. How can Boeing seek private investments going forward?
Adam Pilarski: Warren Buffet has a mixed history on airlines. Years ago, he bought shares and then this is one of the few cases where he lost money. He was very negative about airlines for a long time. Warren Buffet actually had a number of funny comments about airlines, like it's a terrible business and you shouldn't invest in it. This is because he lost money, because he invested in 1990 in an airline stock. It's not surprising, because at that time airlines were ready to go down. Right now, if you look at predictions and if you listen to this guy you've probably never heard of called Dr Pilarski, who is saying that we were ready for a crash.
Right now, my belief is we will get back to the 2019 level only by 2023. We basically lost four years of growth. Would you, as good investor, keep stock in airlines? Warren Buffet… it's not surprising of [him] saying: "no, I don't want this. How about I buy stock in companies that make vaccines or that make new technology on how to teach kids from home?" There are things happening and there will be technological changes. There are some companies that are doing fine. But obviously, there are a number of companies that are not doing fine. Cruise ships don't do well, airlines will not be doing well; other businesses hopefully will. So unfortunately, it all makes sense.
