Boeing CEO Warns Aviation Rebound Will Take Years

Days after President Trump floated the idea that the US government could purchase five years of airline tickets in bulk as part of a stimulus package for crippled airline carriers, Boeing CEO's Dave Calhoun has warned that air travel growth might not return to pre-corona levels for years. Calhoun made the comments on Monday morning at an annual shareholder meeting. He said it would take 2-3 years for air travel growth to return to pre-corona levels, adding that long term growth trends could take even longer to recover. "Based on what we know now, we expect it will take two to three years for travel to return to 2019 levels and an additional few years beyond that for the industry's long-term trend growth to return," he said. Calhoun said the new reality in a post-corona world is a depressing one for airlines: "…they are making difficult decisions that result in grounding fleets, deferring airplane orders, postponing acceptance of completed orders, and slowing down or stopping payments." This is more bad news for Boeing, who has drawn down on revolvers as it struggles to survive, requesting a government bailout as it's faced with a wave of cancellation orders for its planes.

Calhoun said Boeing would need to borrow more money in the next six months. He said it could be years until the company begins paying a dividend again, nevertheless, restarting its stock buyback program. His gloomy outlook echoed our report from April 20, which confirmed the airline industry has crashed as the virus pandemic drove travel demand down to the lowest in decades. We noted that United Airlines and other carriers have warned it could take several years for recovery as well. As a result of depressed passenger traffic, airlines are expected to slash tens of thousands of workers, cancel new plane orders, and trim costs across the board later this year. "Without a quick improvement in demand, we could see the airlines look to shed 800 to 1,000 aircraft, which could result in a reduction of 95,000 to 105,000 airline jobs," Cowen analyst Helane Becker wrote in an April 13 client note.

United's chief executive and president, Oscar Munoz and Scott Kirby said in an April 15 memo to employees that the industry has a "challenging economic outlook" and the overall workforce at the company will be smaller in the future than today. Airlines cheered when Congress last month allocated $50 billion in bailouts to the sector that included $25 billion in grants and loans to keep 750,000 workers employed through September 30. Cowen & Co. has predicted ticket sales won't recover to pre-corona levels until 2025, which explains why President Trump wants to purchase bulk tickets for the next five years. As for Boeing, well, they might be screwed for quite some time as a recovery in the airline industry is years away. This would be a perfect time for Boeing to restructure the company and change its name, along with the name of the 737 Max.

https://www.zerohedge.com/markets/boeing-ceo-warns-aviation-rebound-will-take-years

13 Public Companies Agree To Return $170 Million In Small Business Coronavirus Stimulus; Others Are Keeping It

At least 13 public companies have agreed to return coronavirus funds meant for small businesses after controversy erupted when the $349 billion Paycheck Protection Program (PPP) ran out of funds, leaving many struggling business owners unable to make ends meet. According to the Wall Street Journal, one such company returning funds AutoNation, the country's largest car-dealership chain which said they would return a cumulative $77 million in forgivable loans. Other companies returning funds include Ruth's Hospitality Group, Shake Shack, and pharmaceutical manufacturer OptiNose, Inc. - which will return $4.4 million. Restaurant owner J. Alexander Holdings will return $15.1 million, while sandwich chain Potbelly Corp gave back their $10 million loan on Saturday.

"We were surprised and disappointed when the fund was quickly exhausted, leaving many without help," the company said in a carefully crafted statement. So far 13 public firms, including AutoNation, will return a total of almost $170 million, according to the Journal analysis. The funds returned could provide roughly 825 loans, at the average loan size of $206,000 reported by the Small Business Administration. -Wall Street Journal

On the other hand, companies such as cruise ship operator Lindblad Expeditions Holdings, which has a market cap of $250 million and had over $300 million in revenue last year, says they're keeping the $6.6 million loan they received. The company says that since March 12 when they voluntarily halted all new cruises, that they have not generated any revenue, "which has been financially devastating." "Despite this circumstance, Lindblad is the very rare travel company that has not imposed any layoffs, furloughs or salary reductions to date because of our access to the PPP," the company said, adding that they don't have ready access to capital. Another public company has applied for roughly $123 million in loans, Ashford Inc., says they'll keep whatever they receive.

To avoid a repeat, the Small Business Administration (SBA) and Treasury have revised the rules to restrict hedge funds and private-equity firms from accessing funds, though small casinos may still apply. he SBA was less clear when it came to portfolio companies with private-equity investors. The agency said such borrowers must attest that economic uncertainty threatens the company’s viability. That is similar to what the Treasury said Thursday to deter publicly owned companies from applying. -Wall Street Journal

"A lot of investors run their businesses as businesses," said Scott Pearson, a lawyer for Manatt, Phelps & Phillips LLP, who expects portfolio companies to return the funds even if it will hurt their employees. "If cash flow suggests cutting costs, the natural thing to do is cut costs."

https://www.zerohedge.com/economics/13-public-companies-agree-return-170-million-small-business-coronavirus-stimulus-others

GM Suspends Dividend, Stock Buyback Program To Preserve Cash

In an attempt to preserve its dwindling cash as the economy remains paralyzed, General Motors announced that it has suspended its cash dividend of $1.52/share and share repurchase program while taking "other significant austerity" measures to preserve near-term available cash. The automaker also said it has extended a $3.6 billion, three-year revolving credit facility to April 2022 to help bolster its liquidity, and added to its earlier extension of the $2 billion credit agreement done in early April. GM said it also intends to focus on reinvesting in the business at pretax returns equal to or greater than 20% while seeking to maintain investment grade; the company said it would resume returning capital to shareholders when those measures are met. "We continue to enhance our liquidity to help navigate the uncertainties in the global market created by this pandemic," said GM Chief Financial Officer, Dhivya Suryadevara. "Fortifying our cash position and strengthening our balance sheet will position the company to create value for all our stakeholders through this cycle."

GM’s U.S. plants have been shuttered since mid-March due to Covid-19. As CNBC reminds us, the automaker along with Ford Motor and Fiat Chrysler are in discussions with the United Auto Workers union to reopen the plants, but union leaders said last week they oppose an early-May restart, which several automakers have announced. GM and Ford are among the only major automakers that have yet to announce a time frame to restart production. Fiat Chrysler earlier this month announced plans to restart production next Monday. GM’s decision to suspend its dividend comes more than a month after Ford did the same and withdrew its 2020 guidance. GM last month suspended its guidance for the year.

https://www.zerohedge.com/markets/gm-suspends-dividend-stock-buyback-program-preserve-cash