So Boeing is in real trouble. It is no surprise; the company was in desperate straits going into this period. Will the commercial aircraft company be spun-out from the military side and then saved with state aid? The latter is definite as Boeing is too big to fail for the US. The devil will be in the detail (see below). On other matters, some of you may be wondering “where has all the money gone?” The US majors have been raking in good profits over the past five years, but they have spent much of that cash on share buyback schemes, not too dissimilar to Boeing, Rolls-Royce and others; those “others” also include listed aircraft and engine lessors. They have been using their cash to buy-back shares – you have probably noticed them all saying this is now suspended. Possibly, if they hadn’t been betting on their shares being undervalued, they would have more cashflow now. For lessors, especially listed lessors, they are always undervalued because the value of their shares only ever reflects the book value, rarely its brand, expertise etc, hence their reasoning for buying back shares that they see as cheap. Now, all airline stocks are heading into distressed territory and lessors may follow when airlines start going bust. Only now during a global crash of shocking speed that could not have been predicted can we look back on share buy-back schemes as being a shocking drain on cash reserves. So given these facts, will lessors now have to consider de-listing? Or will they suffer a new reality of a far lower valuation that will not bounce back easily or quickly?
It has been less than a week since airlines begged for cash and already governments around the world are calling out the folly of their actions during the good times. Virgin Atlantic has been called out by the UK opposition (as we knew it would) in the UK parliament, asking how is it that Richard Branson can kick back on his tax free island, having avoided UK tax for some time with his billions intact while his airline tells the UK government that it requires cash to stave off redundancies and a possible folding of the airline? Agree with the statement or not, there is a point there to be noted and there are a few airlines in the same position around the globe. You might argue that governments cannot discriminate between airline companies – well think again because they are and they will. When we come out of the other end of all this we can expect Air France-KLM to be part nationalised, along with Alitalia and a raft of other airlines across the globe. The flag carriers will, as we mentioned last week, be saved at the expense of some privately-owned airlines in cases much like that of JAL versus ANA some 12 years ago. This will distort the market exponentially. We also have other problems – Many expect the Norwegian government to save Norwegian in some way shape or form, but will the Norwegian tax payers really step-up to save long-haul operations that are registered in Ireland and/or the UK or USA? I do not think so, especially when business such as train companies, airports, shops, bars, restaurants, stores, bus companies and other companies few and far between will also all need cash injections. You have to ask: where does the government assistance stop? They cannot save all companies and as such they cannot save all airlines, but I am sure they will try.