This page has been archived and commenting is disabled.
On Boeing - Where's the money?
There was a period of time when I got stuck working on deal-teams that were trying to finance airlines. In corporate finance you usually work on a deal until it happens and then you move onto something different. Not the case with airline finance. These dogs always need more money. No one wanted to work on the deals (they were always shitty and very hard sells).
The list of my "AAA" clients included: Eastern Airlines, TWA, and Continental Airlines. Two of my clients ceased to exist; Continental went BK again and again.
This was in the 80’s when finance was not as sophisticated as it is today. But I tried to be creative. We hocked everything we could get a UCC filing on. Spare tires and parts (even tools), engines so old they could not be used, landing rights and other things that had no real value. One of my highlights was when I financed the gangways that connected the planes to the gate.
Years later I got smashed in the head again when I got involved with a (very) failed effort to LBO United Airlines.
So add me to the long list of folks who have sworn off ever putting up a dime for the airlines. It’s one of the surest ways to lose money. My advice to anyone thinking of putting money to work in airlines is that before you write a check, hold your breath for three minutes. As (virtually) no one can do this, then no one would lose money in this cesspool. My investment rule works perfectly.
With that as an intro I take you to this article in the FT today:
The title says it all. No one should be surprised that the EU banks have turned off the spigot. They are all trying to broadly deleverage. They are already full up on dodgy aircraft paper. What I want to add is that the EU banks have been major providers of liquidity to the global air carriers for decades. The reason that I got involved with this mess was that I knew many European banks. They were all in love with high yielding asset backed lending. Airlines and the EU banks were a perfect match. That these banks are now out of the picture is a very big deal indeed.
A Boeing VP, Randy Tinseth, had this to say recently about those EU banks: (Bloomberg Link)
“There’s been a lot of concern in the market about the availability of capital, especially the situation with European banks.”
So what’s Boeing going to about the shortage of debt capital for the air carriers? Simple. They are going to take the paper right back on their books. From Commercial Chief Executive Officer, Jim Albaugh:
“Our strategy will be that Boeing capital will be much more than a lessor of last resort.”
Oh boy! Look out! Boeing is going to be financing its own sales. (Just like GE does.) I looked at the Boeing Capital home page. This is a list of financial products the nice guys at BA are offering:
The first two categories are the safest of the lot. All the other stuff is very high risk lending. The last on the list, Subordinated Debt, has proven to be a guaranteed way to lose money.
It’s not that leasing (finance or operating) are without risks in this industry. The article that I quoted from is from November 13th, not a month ago. In that article the same Boeing Execs were crowing about their big success in leasing:
Boeing’s strategy to use its capital arm as a tool to gain an edge on strategic competitions was highlighted in July by an agreement with AMR Corp.’s American Airlines, where Boeing committed to providing 100 single-aisle jets to the airline on lease.
Well, 17 days later their best customer did a flame out:
Possibly Boeing Finance will end up doing better at this than I did. I doubt it. If they have any questions on where this strategy leads, they should ask Carl Icahn. He’s been bruised as much as anyone.
BA’s stock is at 14Xs earnings today, not so cheap at all. Possibly investors considering a punt on BA should hold their breath for 3 minutes. That 2.3% dividend everyone likes so much is not nearly enough to cover the risk.
.
»
- advertisements -
+1 on the nationalization comment. GM will be the sole domestic auto manufacturer, and they will be joined by no more than one airframe manufacturer.
I guess it will then be patriotic to buy a new car every two years and constantly fly around the country.
I'll be riding a bike, and stand accused of doing my best to destroy democracy I suppose.
Agreed.
Pan Am, TWA, Continental, United, now American.
And...they declared bankruptcy to avoid pension liabilities to life-long employees.
One or more will be kept alive, if only to provide employment "opportunities" for amerika's security state.
Boeing Finance is surely taking lessons from GE Capital.
Bruce, don't be concerned at all. If all fails, the UST or FED will backstop the losses. Same song for all!
ceased to exist....not seized to exist.
The list of my "AAA" clients included: Eastern Airlines, TWA, and Continental Airlines. Two of my clients seized to exist; Continental went BK again and again.
ceased to exist....not seized to exist.
The list of my "AAA" clients included: Eastern Airlines, TWA, and Continental Airlines. Two of my clients seized to exist; Continental went BK again and again.
Eastern Airlines??
*Wipes tears of memory. Standing outside at old Friendship on the second deck within stones throw of the planes leaving the gates to turn around and taxi out.
No security in sight other than a copper with nightstick and big revovler.
No noise rules in those days. The L1011's were the best show as they struggle to take off. Sometimes I think the 727's would touch tail on the ground briefly while trying to be a rocket out of town.
Ah yes. Eastern. The airline that got it done when Amtrack would not run.
Gas was about .40 a gallon if memory serves.
It's been decades and I can still hear the scream and smell the fuel...
It was also a time where no computers checked your credit. They had inch thick books. If they found your card in it, no go.
Cue John Denver, Take me home on a Jetplane...
My editor called from Spokane and screamed at me about that. There was also an "unusual" that should have been "unusually".
I fixed those nits.
I swear to you, I don't see them. A form of dyslexia?
Rede each artikle 3x befor posting, guarantyeed to eliminate all typoz.
I reed tham fore tims. Stil dont cee it.
Homophone errors are incredibly common to most humans. Your/you're, accept/except, etc. It would be exceptional to be a person who *never* made them. The reason there are editors is because writers generally don't see their own mistakes--they remember what they wrote and fill-in or cover up the errors when they proofread.
Then there are what are called "copy editor errors" which include things like "doubled" linking words, which even skilled editors regularly miss just because of the way the brain parses language.
You write fine, BK. Dyslexia seems unlikely.
(But wath's ralely intisernteg is taht msot ploepe can raed tihs.)
You miss because you are familiar with what you are reviewing.
Best editing device: read what you wrote - backwards, from the last word to the first. Guaranteed that you will see all errors. (It's also time-consuming, because backwards material is hard to read because it is not familiar. But that is what helps you catch the errors.)
Dammit, only you one-percenters could afford an editor
..."I swear to you, I don't see them. A form of dyslexia?"...
Whatever lessons you learn on this...apply them to, say, nuclear power plant operations. Some insights are difficult to confront, no?
Noteworthy also is the contortions the human mind goes thru to avoid acknowledging its error...almost as if it was deliberately programmed to simultaneously deny self error.
I dunno Bruce, Seized to exist or exist to be Seized -- same thing. I think it was your subconscious mind typing here....
This is great Bruce. Moving forward, I think I will finance my own sales as well. In fact, any small business that produces thing of real value for survival should be doing this. I like this, I like it a lot. Sort of reminds me of the self aware moment Jeff Spicoli had with Mr. Hand. Now we all know how that turned out.
Nice catch.
Even Uncle Warren came to that conclusion after USAir
Dont ever invest in airlines? Tell that to those brave souls that bought AMR at .38.. The last time i checked, It was $1.19. Somebody is happy today.
that's a trade not an investment.
If you beleive it will go higher and hold on to it, Its an investment
if you believe AMR will be a good investment...somebody should cot off your trading privileges....IMMEDIATELY.
Yup, albeit a bad one.
So many people slam Amtrak, yet are oblivious as to how much of our tax payer money goes to the airline industry.
http://www.trainweb.org/moksrail/advocacy/resources/subsidies/transport.htm
And most people aren't aware that Amtrak gets sloppy seconds: freight gets the slots (and, well, I would have to agree; but, people need to understand how things to properly weight their decisions/views).
Show federal government subsidies net of user paid fees PER PASSENGER MILE -- then we will have some useful numbers to debate. Am guessing Amtrak is still the biggest loser.
@ Bob:
Yes, it would appear that using that Metric, Amtrak does take the most subsidies per passenger mile.
But, the last time I rode Amtrak, I was not required to take off my belt, shoes, etc, nor charged a $25 per bag fee above and beyond my ticket price each way.
Also, had the Post Office not taken the mail off the passenger trains in 1967, passenger rail may still have been viable.
I do wonder how well the airlines will fare once oil reaches $150/Bbl, and pushes beyond that?
Both planes and trains also carry freight, so the "per passenger mile" figure is just an arbitrary and meaningless indication of what-the-fuck-ever.
That was argument by bullshit.
At least boeing has a few private sector clients, if you can count the state owned airlines of other countries private sector. The folks at Lockheed and the rest of the goobers who build bombers, tankers, fighters and now drones haven't had a private sector customer in decades, if ever.
I believe that Boeing is also in the drone business (I know that they teamed up with Israel once upon a time).
Air France flight 447 is cleared for take off
So is Boeing a full service bank?? Do they have access to the dicount window??
not yet
Waht? Me woory? Boeing is a DoD/special interest darling. They just need to get BA Capital big enough (TBTF) to be bailed out like GE Capital was. Actually, they'd get bailed out *before* GE!
But between now and then - they will be reporting "beats" on airplane sales, "beats" on finance operation. Wall St will rise "targets", options will be deep "in the money", CEO and execs will retire effing-rich.
agreed the military industrial complex doesnt want people to know how much oil they consume... so they have the feds subsidize airlines lol
.
http://www.youtube.com/watch?v=m_wFEB4Oxlo
Bingo. Why shouldn't they do this? It's a no lose situation. Is Uncle Scam really going to let his No. 2 defense contractor go bankrupt? LOL...
"How to Become a Millionaire" - be a Billionaire and buy an airline....
Hey now Bruce, don't be jackin' up my cost on BA puts.
boeing will always be doing well.
http://expose2.wordpress.com
I am a tutorial on cheap Vietnam flights. I also agree with you always "boeing will always be doing well."
....................................................................................
Response from the instructor on the cheap Vietnam flights