December 23, 2019

Merry Christmas, Boeing shareholders: your lame-duck CEO Dennis Muilenburg has been put out of his lucrative misery, to be replaced by board chairman David Calhoun, late of the glorious institutions Blackstone, Nielsen Holdings and General Electric, where he was famed in the nineties as the youngest heir apparent to “Neutron” Jack Welch. The stock will likely now end 2019 (implausibly enough) on a positive note, as you can be sure Calhoun has your short-to-medium-term interests at heart. If nothing else! (Readers of our Boeing coverage might recall Calhoun as the board member who declared most emphatically following the deaths of 157 in the Ethiopian Airlines crash that led to the plane’s grounding that the board’s decision not to ground the Max after its first deadly self-hijacking in October 2018 was neither regrettable nor wrong.)

As for the larger aviation industry, better luck next catastrophe. Last week the broader public got a good look at what one can expect from a Calhoun regime when the company’s board of directors made two grave decisions: to abruptly shut down the assembly lines of the grounded 737 Max jets, which could utterly destroy many of Boeing’s most loyal suppliers; and keep the dividend unchanged at 2.06 a share, or an annualized aggregated $4.8 billion. A lot of longtime industry watchers were perplexed that Boeing would do the two things in concert: as longtime industry consultant Scott Hamilton tweeted, “@Boeing approves quarterly dividend of $2.05 per share. I’m sorry, but I find this really, really bizarre under the circumstances.”

. . .

Boeing has a long history of paying out dividends to shareholders in both good times and bad—one that predates even its current sociopathic leadership. But between 2011 and 2019 those dividends grew grown at an almost violent 22 percent annualized pace, even as the company simultaneously spent tens of billions more on the even more gratuitous pursuit of buying shares of its own stock. But the grounding of the company’s pre-eminent profit generator for what looks to be at least a year is not longer, following a campaign of psychotic corner-cutting and whistleblower-silencing that killed 346 people, is an existential crisis the likes of which even the crisis-plagued Boeing has never experienced.

[AeroAnalysis’ Dhierin] Bechai calculates that when the Ethiopian Airlines 737 Max crash that triggered the worldwide grounding in mid-March, Boeing had about $33.4 billion in cash on hand from carriers to fund the production of new planes, a hoard he expected to run dry sometime early in the first quarter of 2020. Boeing has since added $14 billion to its debt load this year, and it has been widely reported that at least part of that money was funding production of the Max while the grounding shut down the flow of down payments. Bechai believes 737 Max production has been sustained thus far exclusively by its own deposit payments, and that there’s no way the board would have dipped into its cash reserves to fund the assembly line unless they’d gotten some assurance that a return to service was imminent. By contrast, halting the assembly line will allow Boeing’s commercial airlines division to return, on paper anyway, to a positive cash flow situation—which in turn makes the dividends look consummately prudent, at least on paper.

Instead, some of these companies will go bankrupt. Virtually all will be forced to axe workers. Boeing’s biggest supplier—a former Boeing plant in Wichita the company sold to a private equity firm during the mid-aughts as part of its deranged drive to ramp up an idiotic financial metric called Return On Net Assets (RONA)—seems to have been caught completely unawares by the move. Every industry expert contacted by The New Republic about the matter agreed that shutting down production altogether, only to ramp it up again when the 737 Max is un-grounded, would be much more expensive than merely slowing down production instead, especially given the outstanding contractual agreements involved. That said, no one was able to cite any specific numbers in this scenario, because no one had contemplated the possibility that Boeing would opt to do something so abrupt and arbitrary.

The full article can be accessed here.