I’ve got a lot of family in the Seattle area, and the Boeing disease used to be devastating — Boeing sneezed, and families all across the region would be sent home to shiver and starve. It’s not quite as bad now, but the corporate giant is still a huge influence on the region, and when they screw up, everyone gets to suffer. And wow, but have they been screwing up, with control of the company in the hands of MBAs who really don’t know what they’re doing.
The latest catastrophe, on top of the 737 MAX disasters, is that they used prior profits to buy back stocks to artificially inflate their value, a game that was illegal before Saint Reagan wrecked the economy. That’s the kind of scheme they teach you in business school, I guess, but it means that right now they’ve got no reserves to weather the storm of airplane crashes.
This mad scramble for cash and the existential urge to “preserve cash in challenging periods” comes after this master of financial engineering – instead of aircraft engineering – blew, wasted, and incinerated $43.4 billion on buying back its own shares, from June 2013 until the financial consequences of the two 737 MAX crashes finally forced the company to end the practice. That $43.3 billion would come in really handy right now.
The sole purpose of share buybacks is to inflate the stock price because they make the company itself the biggest buyer of its own shares. But those $43 billion of share buybacks cost the company $43 billion in cash. Now those buybacks have stopped because Boeing needs every dime of cash to stay liquid and alive, and shareholders, who’d been so fond of those share buybacks, are now getting crushed by the damage those share buybacks have done to Boeing’s financial position.
I suspect airlines are facing dramatic losses of revenue as people stay home on top of that, so few companies are going to buy airplanes. Boy, aren’t those clever financial wizards running the show really great at lining their own pockets, but not so good at running an aerospace company? And yet the Republican government’s solution to economic problems is to hand these kinds of wizards even more money that they will convert into personal wealth at the expense of the company’s worth and health.
Bruce Fuentes says
All this companies have been feeding at the public trough long enough. The Rethugs will want to pour all of our money into these corporations. We must be willing to fight for money to go back to the people, not the uber wealthy and corporations taht have already been paid multiple times.
Imagine the out cry if people on public assistance squandered the money they received. People love to bitch when someon gets a couple hundred in assistance but don’t bat an eye to billions.
Pierce R. Butler says
Yet, of course, probable post-Trump™ GOP presidential candidate Nikki Haley just resigned from Boeing’s board of directors only over the high-minded principle of opposing corporate bail-outs, with – how dare anyone suggest otherwise! – no thought whatsoever of any parallel to the alleged rats-and-sinking-ships evacuation phenomenon.
Of course, the airlines, themselves, took that big ol’ trumpian tax cut and used it to invest in new technologies, training, infrastructure improvements, and to stash away for a rainy day…
I kid, I kid. They bought back their own stock as well. Now they’re crying to Uncle Deeppockets that they’re going broke cause no one wants to fly their steaming bacteria and virus tubes and need $65 billion to tide them over which they promise, cross their hearts, they won’t use to buy any more of their stock or to give bonuses to their execs.
Tabby Lavalamp says
How much of the pain in today’s USA started during Reagan’s administration? Not just trickle down and the loosening of financial regulations, but the gutting of the Fairness Doctrine, leading to the rise of right-wing propaganda networks on the radio and television.
The irony is that Ronnie himself would be too moderate for today’s Republican Party.
I guess it makes sense to buy some stock back during a slump, so you can sell them off later, when the company recovers. Of course, if the company is hit with another blow before you sell it off, all you’ve done is lock your liquidity in stocks that are dropping like a rock. If you’re already in a liquidity crisis, it’s a really bad move.
Don’t they teach people things like this at business school? What the hell do they even learn there?
Was this perhaps motivated by the stock price being necessary for something else? As in, by buying the stock, you inflate the price of the stock you already hold, so you can use that as security for further loans. Something like that?
Or maybe it’s just that bonuses are often dependent on stock price, so somebody was getting theirs while they could.
bluerizlagirl . says
I think in future we are going to need to keep track of borrowed money separately from “real” money, and tag every sum with the lender to whom it’s owed. Because at the moment we are treating sums of money like simple scalars; but the fact is, borrowed money is really a vector quantity, since it has a direction associated with it. An IOU is worthless to the person who issued it. (It’s also worthless to anyone else, if you can manage to die before it gets returned to you ….)
Whenever anybody tries to pay money into their own bank account, if they owe any money to anyone else, the sum they pay in should be used to pay off any debts they owe first; and only what is left, if anything at all, should go into their account.
Most of the “money” in the economy is actually scrip, and the fact of it being counted multiple times over makes it look more than it really is.
The whole point here was to make the stock look better when the company was having major pressure on profits caused by ongoing issues with 787 production costs and supply chain mismanagement in the early teens. Boeing had to shuffle suppliers, buy one outright, and put a crucial program in jeopardy because of a misguided attempt to move cost and risk off their plate to their subcontractors. The Dreamliner program is on track now, and successful, but the accounting tricks used mean it will not actually be profitable for many years. Boeing and the airlines shot themselves in the foot here.
Snarki, child of Loki says
“First, we hang the MBAs”
Shakespeare should have written.
Larry @2: ” no one wants to fly their steaming bacteria and virus tubes”
Why are you discriminating against other pathogens? It may be harder to be infected by a yeast, say, or pick up a brain-eating amoeba, on one of them tubes, but we must try harder! (I wouldn’t be surprised if there’s a good, not necessarily bacterial or viral, reason for those signs warning you not to drink the water from the taps in the toilet compartments. And those on-board food-like substances … .)
As an airline pilot, I am appaled by these actions and all I can hope for is people remember this and it doesn’t happen again. I can tell you that everyone in my industry has just been high on the smell of money for the last few years while us old timers (and I’m only 50!) that remember 9/11 and the recession (which wasn’t that long ago) were cautioning that you never know what could happen and this industry can fall fast. And now you have that situation where that ‘something’ has come to pass and the house of cards is crumbling. I am fortunate that my airline, while undoubtedly sharing in this, also has better financial sense but that’s more because of our ties to other airlines and they realized how that can change at any time. Also, just to clear it up, it’s not recycled air, there is a recirculation fan but that is to pump up airflow volume, the air itself is being continuously refreshed from the outside through the ram air inlets otherwise we’d, uuh, die, and also would depressurize becuase airplanes aren’t completely sealed (ask me how I know that! tl;dr loss of pressurization due to air conditioner packs failure and an emergency descent)
You nailed it.
Ronnie Rubberhead. Fairness doctrine. All of it.
Erlend Meyer says
This seems like straight up plundering. By retiring the acquired stocks they inflate their own stock options, right? Then they bail ship and pass it along to it’s buddies like a sex slave. Wow!
If this is legal the system is too broken to be fixed.
You are assuming that those profits would have been put into cash savings and been available as a rainy-day fund now. They probably would have mostly been paid out as dividends with the remainder put into an investment portfolio, i. e., used to buy stocks and bonds of other companies. The chief officers of companies like Boeing make gross salaries in the $10millions range with most of that in the form of bonuses. Those bonuses are based on performance. Performance is measured by increases in the price of the company’s stock (which is logical since those executives work for the company owners, the share holders). Thus, stock buybacks increase bonuses and enhance the value of the stock options owned by the execs. What could go wrong?
Logically, Boeing and other such distressed companies should only get government bailout only AFTER they divest themselves of company owned stock. But that would further drive down the market indexes, something Trump and the Republicans can’t tolerate just before the election!
Meanwhile over here in good old GB,richard ,i am so smug it is a wonder no one has punched me in the mouth,branson
has given his workers at virgin airlines two weeks unpaid leave ,and has gone begging to the govt for a multi billion pound bail out .
“How much of the pain in today’s USA started during Reagan’s administration?”
I’ve been saying this for years: Reagan marked the beginning of the end. The trickle down was bad enough (and the economic data prove this) but the real killer was him poisoning the well with the noxious idea that government is always the problem and never the solution. That evil mantra has been drummed into people’s heads for four decades now (interestingly, including people who have been in government for several decades themselves).
Some structures are more efficient and effective than others, but ultimately what matters is the people who hold power within those structures. It’s my Mr. Rogers test. Does anyone think that the Senate would be as big of a clusterf*ck if Mitch McConnell was replaced by Fred Rogers? (I contend that, even dead, Fred would be a better Senate leader for the American people because he wouldn’t be actively harming them.)
there are a number of ways that modern business management wreck companies for their own short term benefits. this is a very good example as it is dramatic and very public. The modern business exec. is trained in business management generally these companies were not built by generic business people but by people who liked the industry they worked in and built.
The modern MBA works for money only and can work in any industry to make it. They are judged a success by how much money they make for themselves and the share holders today profit only not a company nor industry and certainly no consideration is ever given to the people work for the company since they do not give a fig for the company as such only the profit that they can derive from it.
There has never been a better economic mechanism than Capitalism for making the rich richer and the poor poorer. I mean, Slavery and Feudalism were pretty good, but Capitalism made it an art form.
the improvement in enabling fraud and theft alone make it far superior.
Why would Boeing or any of these companies worry about ever running out of money or failing due to incompetence?
If there was one thing that 2008 taught us, it’s that there will never be any consequences for financial malfeasance and it’s nothing but bailouts all the way down if you’re a megacorp.
Welfare for the rich, brutal capitalism for the poor. Why even stop at stock buybacks? Lever up, it’s the taxpayers who suffer your losses!
Ah, yes, the Reagan era. Current events are pretty much exactly what progressives were warning was going to happen because of Reagan’s policies and being dismissed as alarmist.
I’d also note that in Reagan was famous for union busting, in particular the federal ATC union. It was a very popular move. So don’t claim that we’ll stop “them” when they come for the trade unionists. When they came for the trade unionists we cheered them on because strikes are so inconvenient and besides which if we don’t have [insert perfectly reasonable demand here], why should they?
@8: If you want to pick up a bug, just take a cruise. Any cruise. Anywhere.