Could Boeing Get Taken Over By The US Government?
President Donald Trump said this week that the U.S. government will back struggling airlines such as Delta Air Lines, Inc. (NYSE:DAL), United Airlines Holdings Inc (NASDAQ:UAL), American Airlines Group Inc (NASDAQ:AAL) and Southwest Airlines Co (NYSE:LUV) as they deal with COVID-19 related shutdowns.
On Wednesday morning’s Benzinga PreMarket Prep, co-host Dennis Dick discussed the airlines, cruise companies, casino stocks, Boeing Co (NYSE:BA) and other companies that could potentially require government bailouts.
'I Wouldn't Touch This Thing'
Dick has been warning investors not to touch Boeing and cautioned them again about thinking a government bailout is a positive outcome for investors. Boeing's stock has dropped from the $308 level to $90 per share over the last 30 days.
“I wouldn’t touch it because if they nationalize this thing it’s going a lot lower. People have it and they don’t understand how it works. They think, 'okay, the government’s going to bail them out, so how do I lose as a shareholder?'”
Dick clarified that the government is not bailing out shareholders but rather simply keeping the company going. If the government takes the same approach as it did during the 2008 financial crisis, it may take large ownership stakes in the bailed out companies that would severely dilute current shareholders.
“If they nationalize Boeing, it’s not going to be worth $105 per share. Don’t be surprised if it’s worth $5 or $10 per share. I’m not joking,” Dick said.
Comparisons To 2008
He compared the current situation to the bailouts of Federal National Mortgage Association (OTC:FNMA), and Federal Home Loan Mortgage Corp (OTC:FMCC) during the financial crisis. Since the beginning of 2008, Fannie Mae and Freddie Mac shares remain down more than 95% overall.
“The government basically comes in and cuts them a check but takes a huge amount of shares. Maybe they’re going to take 90% of the company to cut them this huge check to keep them floating,” Dick said.
Before the government seriously considers a Boeing bailout, Dick said the first step will be to cut the stock’s dividend to zero.
While many of the banks that received government bailouts in 2008 fully recovered from their financial crisis lows, the most extreme cases like Citigroup Inc (NYSE:C) and American International Group Inc (NYSE:AIG) never recovered their previous levels. Citigroup shares are down 88% from the beginning of 2008, and AIG shares are down 98%.
“I think Boeing’s going the same way. This is my opinion, and I could very well be wrong,” Dick said.
Others Weigh In
Dick isn't the only one that has been speculating about a Boeing takeover. CNBC’s Jim Cramer said Wednesday Boeing will run out of money if it is not rescued.
"We must save Boeing so to speak, both from the side that the airlines are going to get money, but if you don’t have maybe one of the, if not the most important, company in the country solvent, then I think a lot of things are going to go wrong," Cramer said.
Pershing Square Capital's Bill Ackman said Wednesday that bailouts will likely be necessary.
“The hotel industry and the restaurant industry will go bankrupt first, Boeing is on the brink, Boeing will not survive without a government bailout,” Ackman said. “Capitalism does not work in an 18-month shutdown, capitalism can work in a 30-day shutdown.”
How To Play It
Dick said he’s staying away from cruise lines, casinos and major airline stocks for the same reasons.
“Even on an up day yesterday with the airlines, they were all down. That’s telling you that there are major problems here. I believe that they may have to nationalize some of the airlines as well,” Dick said.
Bullish sentiment among StockTwits messages mentioning Boeing was at 48.9% on down from 64.4% a month ago.
Much like the financial crisis of 2008, bargain hunting stocks that are currently in financial distress could potentially result in some huge long-term winners, but those stocks must be companies that can weather the storm without going bankrupt or requiring massive government bailouts. At this point, it’s nearly impossible to determine how this COVID-19 outbreak will play out and which companies will come out the other side.
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