Key Takeaways from Boeing Bankruptcy Discussion with Aerospace Experts

Boeing is one of the cornerstones of the global aerospace industry, yet the company is experiencing tumultuous times. The grounding of its 737 Max airplane in the wake of the Coronavirus outbreak caused the company to book over $20Bn in charges, and some are worried about liquidity issues, and even bankruptcy.

On Thursday, LFJ hosted a panel discussion with a pair of experts on the Aerospace industry regarding the fate of Boeing, and the future of the industry.

The experts included Scott Hamilton (SH), Managing Editor of Leeham News and Analysis, and Richard Aboulafia (RA), Vice President of Analysis at Teal Group. Both are experts in Aerospace, and frequently cited as Aviation experts by major media outlets. The panel was hosted by LFJ Founder, Jason Redlus (JR).

Below are some key takeaways:

JR: On a macro basis, what is your expectation regarding Boeing specifically, and the Aviation sector more generally? 

RA: I think there is this impression that it’s a bailout of Boeing, and I just don’t see it as that. The overwhelming footprint in terms of jobs and even money for a jetliner are not in the supply chain. The question becomes ‘do we keep that supply chain going or don’t we, and face the consequences of mass layoffs and a real hit to the economy? If Boeing wants to save itself, it would take the expedient route by stopping all production.”

SH: I don’t think Boeing will go into bankruptcy unless the capital markets completely dry up…which is what we saw to some degree after 9/11. The airlines just didn’t have access to liquidity and that’s why you had the Air Transportation Stabilization Bill created, which in its own right wound up picking winners and losers. My concern about the supply chain is deeper than my concern about Boeing at this point. I think that Boeing is probably correct that the supply chain is more at risk than Boeing is.

RA: There is a liquidity crisis…but does this mean this is an instant bankruptcy? Far from it. It just means they have to watch themselves. The question of an aid package is whether terms and conditions can be applied that guarantee they’ll keep paying people and suppliers…less about avoiding bankruptcy and more about avoiding an economic collapse in that sector.

 JR: In the litigation finance community, who gets in trouble on something like this?  If the government just gives Boeing a check and lets them use it at their discretion, doesn’t that create a kind of litigation through the supply chain? Where do you see litigation as the fallout from this crisis in the aviation industry?

SH: Lawyers can find reasons to litigate about anything (laughter). Somebody somewhere would object to how the money is disbursed. Of course, we don’t know what the bailout language would look like. How does the mom and pop supplier at risk of going out of business also get a piece of the pie? How do they afford a lawyer if they’re already on the edge? How would Boeing determine who the winners and losers are?

RA: How much litigation is needed depends upon how well the lawyers and legislators do their jobs upfront. If they construct an architecture to come up with something that lays out the framework for disbursing that aid, we probably won’t have a litigation problem. The more likely scenario is that the money is provided to Boeing and a couple of others, and then they’ll be in charge of letting that cash trickle down. Some suppliers will feel aggrieved.

What do you do in the case where a vital Boeing supplier is based in France? Then you get people screaming that US funds are going abroad. In global businesses, will we be matched by a similar European program—so does this become a back door to subsidization? So let’s make it targeted, equity should not be allowed. I absolutely believe that government help is justified…for the supply chain. But how do you distribute it and how does Boeing become the arbiter of that money? It’s gonna be a real mess.

JR: Where are you seeing points of stress or opportunity during this crisis?

SH: I’d be looking for buying opportunities to strengthen my supply chain. Does it make sense for the government to give money to Boeing only to see that turn around; to spend $4.5 billion on a company with a market value of $1.2 billion? Is that deal in jeopardy?

JR: Any final closing comments? 

SH: Everything we’ve said in the last half hour will probably be out of date in five minutes (laughter).