{"id":20041,"date":"2020-03-21T03:17:57","date_gmt":"2020-03-21T03:17:57","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=20041"},"modified":"2020-03-21T03:39:12","modified_gmt":"2020-03-21T03:39:12","slug":"bailout-time","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2020\/03\/21\/bailout-time\/","title":{"rendered":"Bailout time"},"content":{"rendered":"

Boeing has applied to the Federal government for a $60 billion bailout. The troubled aircraft manufacturer is in need of rescuing but has indulged in $54.9 billion of stock buybacks in support of its stock price.<\/p>\n

Former UN ambassador and ex-South Carolina governor, Nikki Halley resigned<\/a> from Boeing’s board, saying that she opposes federal support for Boeing. Smart political move. Public anger is growing.<\/p>\n

\"Twitter
\n\"Twitter
\n\"Twitter
\n\"Twitter
\n\"Twitter<\/p>\n

Many corporations used stock buybacks to boost earnings per share after earnings growth slowed in 2014\/15. Boeing was no exception.<\/p>\n

\"Stock<\/p>\n

The company had a reputation for engineering fine aircraft but in recent years that focus has shifted to financial engineering and cost-cutting to boost earnings per share. Free cash flow was squandered on stock buybacks, dividends and executive bonuses. No reserves were accumulated for a rainy day.<\/p>\n

Well, a rainy day finally arrived in 2018. The Boeing 737 MAX airliner, which began service in 2017, was involved in two fatal accidents, Lion Air on October 29, 2018, and Ethiopian Airlines on March 10, 2019, caused by a malfunction of the aircraft’s new MCAS automated control system. The aircraft was grounded by airline authorities around the world and Boeing suspended production in December 2019. After a software bug was discovered in January, the return to service was delayed. Despite an outstanding issue over non-compliant wiring bundles the FAA has indicated that they expect the 737 Max to return to service in the second half of 2020.<\/p>\n

The company had to raise almost $10 billion in bonds to help it weather the setback. CEO Dennis Muilenburg was ousted in late 2019 but still walked away with a golden parachute of up to $50 million<\/a>.<\/p>\n

A hit from the 2020 Coronavirus outbreak has put the company into difficulties, with the stock getting pounded. Boeing has been forced to apply for a government bailout.<\/p>\n

\"Stock<\/p>\n

The company is a strategic asset of the United States and should be protected.<\/p>\n

But rewarding bad behavior would promote moral hazard on a wide scale. To give management and stockholders a free ride would encourage risk-taking by other companies\u00a0\u2014 with the expectation that they will be bailed out if something goes wrong.<\/p>\n

Support the company but hurt the stockholders<\/h3>\n

Management and existing stockholders need to feel the pain.<\/p>\n

Offer support in the form of $60 billion of convertible bonds or preference shares, ranking behind creditors but ahead of stockholders. Conversion into ordinary shares should be in 10 years time but at the current stock price of $100. Stockholders and management awards will take a huge hit,\u00a0 while taxpayers can look forward to a sizeable gain when the company recovers.<\/p>\n

Support should be non-voting (bonds or prefs) to keep political interference to a minimum.<\/p>\n

Buybacks<\/h3>\n

Preventing future buybacks is a completely separate issue that should be addressed on a national basis and not by placing restrictions on individual companies. For the record, we are against buybacks because they can be used to artificially support stock prices. Companies that need to return capital to stockholders should declare a special dividend.<\/p>\n

Avoid a Domino-effect<\/h3>\n

There are a string of companies lining up with bailout requests. It is important to put emotions aside and save those that are still viable businesses and not just strategic assets like Boeing. Millions of jobs are at stake. And disruption to credit markets could have a Lehman-like domino effect.<\/p>\n

Just ensure that it is on terms that favor the taxpayer, so that stockholders will think twice about future profligacy.<\/p>\n","protected":false},"excerpt":{"rendered":"

Boeing has applied to the Federal government for a $60 billion bailout. The troubled aircraft manufacturer is in need of rescuing but has indulged in $54.9 billion of stock buybacks in support of its stock price. Former UN ambassador and ex-South Carolina governor, Nikki Halley resigned from Boeing’s board, saying that she opposes federal support … <\/p>\n

Continue reading “Bailout time”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[40,45,34],"tags":[331,4025,4269],"class_list":["post-20041","post","type-post","status-publish","format-standard","hentry","category-australia-nz-countries-regions","category-debt-levels","category-us-canada-countries-regions","tag-bailouts","tag-buybacks","tag-executive-bonuses"],"yoast_head":"\nBailout time - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Bailout time - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Boeing has applied to the Federal government for a $60 billion bailout. 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Michael Santoli at CNBC reports that Apple's sales and earnings over the past 4 years are essentially flat. The only metric that has improved is earnings per share (EPS) because of stock buybacks.\u2026","rel":"","context":"In "International Growth"","block_context":{"text":"International Growth","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investment-allocation\/international-growth\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1908,"url":"https:\/\/thepatientinvestor.com\/index.php\/2011\/11\/15\/auditor-says-f-h-a-could-need-bailout-nytimes-com\/","url_meta":{"origin":20041,"position":1},"title":"Auditor Says F.H.A. Could Need Bailout – NYTimes.com","author":"ColinTwiggs","date":"November 15, 2011","format":false,"excerpt":"WASHINGTON \u2014 The Federal Housing Administration has a \u201cclose to 50\u201d percent chance of requiring a bailout if the housing market deteriorates next year, the agency\u2019s independent auditor said in a report released Tuesday. The F.H.A., which offers private lenders guarantees against homeowner default, has just $2.6 billion in cash\u2026","rel":"","context":"In "US & Canada"","block_context":{"text":"US & Canada","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/us-canada-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":20491,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/05\/09\/sp-500\/","url_meta":{"origin":20041,"position":2},"title":"S&P 500: Watch Money Flow","author":"Colin Twiggs","date":"May 9, 2020","format":false,"excerpt":"The S&P 500 index is headed for a test of resistance at 3000. Volatility remains at extreme levels and chances that this rally will fail are high. Earnings for S&P 500 stocks are forecast to fall by 40% when compared to the March quarter last year and 38% for the\u2026","rel":"","context":"In "Stock Markets"","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4792,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/07\/08\/sp-indices-sp-500-stock-buybacks-decrease-for-first-time-since-q2-2009\/","url_meta":{"origin":20041,"position":3},"title":"S&P 500 dividend yields signal oversold?","author":"Colin Twiggs","date":"July 8, 2012","format":false,"excerpt":"Historically the S&P 500 was considered overbought -- and ripe for a bear market -- when the dividend yield dropped below 3 percent. A surge in share buybacks in the past two decades, however, disrupted this relationship, with the dividend yield falling close to 1.0 percent in the Dotcom era.\u2026","rel":"","context":"In "Earnings & Dividends"","block_context":{"text":"Earnings & Dividends","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investing\/earnings-dividends\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":17981,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/03\/16\/sp-500-beware-the-buyback-blackout\/","url_meta":{"origin":20041,"position":4},"title":"S&P 500: Beware the buyback blackout","author":"Colin Twiggs","date":"March 16, 2019","format":false,"excerpt":"We are now entering the blackout period when US corporates normally refrain from buying back stock, in the four to six-week period prior to their next earnings release. There is no outright ban on buybacks during that period but discretionary repurchases are restricted. Zerohedge illustrates the extent to which stock\u2026","rel":"","context":"In "Fixed Income"","block_context":{"text":"Fixed Income","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/fixed-income\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":19788,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/02\/14\/a-worm-in-the-apple\/","url_meta":{"origin":20041,"position":5},"title":"A worm in the Apple","author":"Colin Twiggs","date":"February 14, 2020","format":false,"excerpt":"Apple Inc (AAPL) enjoyed stellar growth over the past 12 months, jumping more than 50%. But is that due to solid operating performance or window-dressing, with almost $140 billion of stock buybacks in the last two years? Free cash flow \u2014 operating cash flow less stock compensation and investment in\u2026","rel":"","context":"In "Stock Markets"","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/20041","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=20041"}],"version-history":[{"count":7,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/20041\/revisions"}],"predecessor-version":[{"id":20060,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/20041\/revisions\/20060"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=20041"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=20041"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=20041"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}