Boeing, Symbol of US Economy... Facing Brink of Crisis, Will Public Funds Be Injected?

Request for about 77 trillion won amid the COVID-19 crisis

Trump: "Absolutely protect Boeing"

If problems such as crashes are not resolved

It could end up like GM during the 2008 financial crisis

Criticism that it might only be put on life support

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jaehee] Attention is focused on whether Boeing could become the first U.S. company to receive emergency bailout funds amid the crisis caused by the spread of the novel coronavirus infection (COVID-19). This is because the airline industry has been hit hard by COVID-19. U.S. President Donald Trump also responded positively to the possibility of injecting emergency funds into Boeing. However, some voices express concern that if the root problems are not addressed and Boeing is only put on life support, it could follow the same path as General Motors (GM), which received bailout funds during the 2008 financial crisis.

According to foreign media including Bloomberg on the 22nd (local time), Boeing recently requested financial support worth $60 billion (about 77.4 trillion won), stating that the entire aviation industry is in crisis due to COVID-19. This is separate from the $50 billion bailout requested by the airline industry.

U.S. President Trump also responded at a press conference last week, saying, "We must absolutely protect Boeing." Furthermore, at a White House briefing, he hinted at the government's willingness to take equity stakes to help private companies in crisis.

Despite all industries, including the airline industry, being in crisis due to the spread of COVID-19, the particular focus on public fund injection into Boeing is due to its symbolic significance in the U.S. economy.

According to the Bank of Korea, the aviation and related parts industry accounts for 5.5% of U.S. manufacturing production. Aviation and related parts account for 8.3% of U.S. exports. Boeing alone creates 2.5 million jobs and supports about 17,000 suppliers, making its economic impact significant. Additionally, Boeing produces various military aircraft and rockets, directly linking it to U.S. national defense capabilities.

The government's response to the COVID-19 economic crisis, including injecting public funds and purchasing equity, resembles the 2008 financial crisis. During that crisis, the Obama administration injected $12.4 billion (about 20 trillion won at the exchange rate at the time) of public funds into the automobile manufacturer GM. However, when GM filed for bankruptcy the following year, the Obama administration took measures such as purchasing 61% of GM's shares.

Some express concerns that Boeing might follow GM's path. Even before the spread of COVID-19, Boeing had not resolved long-standing issues such as the 737 Max crisis, which caused hundreds of deaths due to consecutive crashes, and excessive competition with Airbus. Therefore, if funds are injected without solutions, it is pointed out that Boeing might only be kept alive on life support.

Former U.S. Ambassador to the United Nations Nikki Haley recently resigned from Boeing's board, which is seen as reinforcing pessimistic forecasts. Haley, a member of Boeing's board, opposed Boeing's bailout request and sent a resignation letter. In the letter, she stated, "The board and management are heading in a direction I cannot support."

Strong criticism of companies receiving bailouts is also considered a hurdle Boeing must overcome. This is because indiscriminate support has been criticized for leading to reckless management. Until now, U.S. companies including Boeing have invested a significant portion of their earnings in share buybacks and dividends.

According to Bloomberg, the U.S. airline industry closely linked to Boeing spent 96% of its free cash flow on share buybacks from 2010 to 2019. The four major U.S. airlines?Delta, American, United, and Southwest?spent $39 billion on share buybacks over the past five years. Boeing also spent more than $35 billion on share buybacks during the same period.

U.S. Senator Elizabeth Warren has argued, "Companies receiving support should be permanently banned from share buybacks," and "Dividends and executive bonuses should also be banned for three years." President Trump also stated, "I support a provision banning share buybacks in the bailout bill."

This content was produced with the assistance of AI translation services.