The flagship of the American aerospace industry and one of the symbols of American technological power-the Boeing concern-is rapidly falling from the sky to the earth. Its main factories are now closed. The official cause is the coronavirus pandemic, but in fact, Boeing’s problems are much more systemic and deep.
According to the American aircraft company Boeing, from April 6, 2020, it extends the shutdown of its largest Assembly plant, located near the city of Seattle, Washington. The plants were stopped on March 25, but this step was considered only a temporary measure – in particular, it was reported that by the beginning of April, the Corporation even intended to return workers to the Assembly lines. However, today’s announcement does not leave much hope for an early launch. It says that ” Boeing extends until further notice the temporary suspension of production at all facilities in the Puget Bay area,” on the banks of which the plants in Everett and Renton are located.
Submit 60 billion dollars for food
The financial and production problems of Boeing are already well known even to people who are very far from the aircraft industry. Over the past two months, the airline’s shares have almost tripled on the stock exchange – from a high of $ 350 per share in mid-February to a low of $ 90, which was marked on March 20. Since then, the price of Boeing has grown slightly, but last Friday it still closed at $ 124 per share.
The latter, rather modest growth was associated with the expected, but very unexpected in fact, a message from the White House administration. In late March, Donald Trump said that his administration could support a leading us defense contractor and one of the world’s two largest aircraft manufacturers for an unprecedented $ 60 billion. The money was to be allocated as part of state support for the aerospace industry.
“We appreciate the support of the President and administration for the 2.5 million jobs and 17,000 suppliers that Boeing needs to remain the top U.S. exporter. We look forward to working with the administration and Congress, ” Boeing wrote at the time, expecting the White House to act quickly and decisively.
However, the reality was much sadder. Trump’s declarations have not yet turned into any actions to provide funding, although Boeing was even ready to “take in-kind”, or rather-state credit guarantees for the company and its suppliers, instead of” live ” money. As a result, by April 2, Boeing had to close its helicopter manufacturing facility in Philadelphia, which is engaged in the production of h-47 Chinook helicopters and V-22 Osprey tiltrotors. And from April 6, stop their main aircraft factories in Everett and Renton, which together are responsible for 4/5 of all Boeing aircraft production.
The huge holes in liquidity that literally destroy Boeing from the inside are only partially determined by the covid-19 epidemic. Yes, at the moment, a modern anti-record has been set for the number of daily flights – last Sunday, only 57 thousand aircraft took to the air worldwide, compared to 171 thousand flights a month earlier, on the same Sunday, March 8, 2020. However, Boeing got into its deep “rabbit hole” much earlier than the beginning of the acute phase of the COVID-19 pandemic, which is directly related to quarantines, border closures and mass cancellations of passenger flights.
400 ” max ” in the Parking lot near the plant
Yes, we are talking about the infamous Boeing 737 MAX. This poorly designed car, which took 346 lives in two accidents, became a real headache for Boeing. To the 393 boards that have been forced to stand idle since March 2019 from airlines that bought the “Dreamliner” from Boeing, by December 2019, about 400 more boards were added, which were rolled out day after day from the Renton plant for 9 months. It got to the point that new planes that simply could not be transferred to customers because of the ban on flights of this modification of Airliners had to be rolled out to the Parking lots near the production buildings, as Parking spaces near the runway of the plant were already completely clogged.
Given that each Boeing 737 MAX was sold to customers for 28-35 million US dollars, only 400 “Maxs” standing near the factories were frozen about 12 billion dollars.
However, this was only the tip of the financial iceberg that broke an irremediable gap in the balance sheets of Boeing. Comparable figures ran up on the downtime of 393 boards of the 737 MAX model, which have already been officially transferred to the disposal of various airlines.
In particular, one of the largest clients of the airline giant, American Airlines, said that it had agreed with Boeing for compensation for financial damage incurred due to the suspension of operation of the 737 MAX model aircraft. The company did not disclose the size of the non-public transaction, but indirectly its size can be estimated from the “swollen” balance sheet of American Airlines. In the past October, one-time revenue increased by as much as $ 540 million, which the airline immediately attributed to its annual profit. Apparently, this half-billion was the compensation sought from Boeing. Such gigantic compensation Boeing paid for the moored fleet of only 24 aircraft at the disposal of American Airlines.
Given that 24 American Airlines flights account for only 6% of the total number of 393 aircraft, Boeing’s total losses from downtime of 737 MAX sold in March-October 2019 alone may amount to about $ 9 billion more. Therefore, the amount of $ 60 billion that Boeing is so eager to receive as state aid is, in fact,”support for the pants”. Funds that will be pumped in place of the billions of dollars that have already fallen out of circulation, turned into hundreds of “dead” MACH 737s around the world, which may never take off without major alterations and upgrades.
However, there is a very sad note in the current message. Not only is the Renton plant that produced the ill-fated MACH 737 being closed indefinitely, but the Everett facility that was responsible for assembling such popular models as the Boeing 747, 767, 777 and 787 Dreamliners. These four models were the “gold reserve” that still somehow kept Boeing afloat in a situation of incessant hell around the MACH 737. If the plant in Everett closes exactly the same way as in Renton, it means one thing – the demand for all Boeing models has already collapsed somewhere in the Tartars and no one is waiting for the market to recover soon in the aircraft manufacturer.
Nothing is new under the moon…
The situation of this sad state of Affairs has already haunted Boeing in the past. Starting in 1969, Boeing, after a decade of continuous growth in air travel and the creation of such “industry icons” as the Boeing 737 and Boeing 747, began laying off employees. The air transport market was hit by a “child growth disease”: it turned out that its expansion has its limits, determined by effective demand, which is essentially finite in the conditions of our globe. Due to a glut in the market, sales of new Boeing aircraft fell sharply, and the company itself was on the verge of bankruptcy, which led to cuts in every Department and shop.
Another blow came in 1971, when the US government cut funding for the supersonic transport program, under which Boeing was creating a unique supersonic airliner, the Boeing 2707, twice the capacity of the Anglo-French Concorde and the Soviet Tu-144. Soon after, it became clear that Boeing was not pulling production of 2707 without government subsidies – and the project was canceled altogether.
As a result of this series of failures, Boeing lost more than 60% of its workforce. Former engineers and highly skilled workers went to work on construction sites, as salesmen in stores or as waiters in cheap eateries.
Well, since Boeing was the largest employer in the Seattle region, its decline had a secondary impact on the entire local economy, and the unemployment rate rose by comparison in Washington state. A Billboard outside of Seattle then sadly read: “The last person to leave Seattle, turn off the lights.”
I think that the coming months will clearly show whether Boeing will be able to receive the much-anticipated state support. As the practice of the past shows, any crisis is most painfully perceived by high-tech companies whose products are not included in the”standard product set”. A person can refuse to fly to the resort once a year, but it is unlikely to refuse to eat every day or warm clothes in winter. That’s why you can’t envy Boeing – it’s really hard times for one of the world’s leading aircraft manufacturers. Maybe even the most difficult of all, he’s had so far.
So now the ball is in the hands of White House officials – they are the ones who can ” turn off the lights in Seattle.” Well-or light it again.