WSJ What’s News - Just How Great Is the Strain on Boeing’s Balance Sheet?

Episode Date: October 24, 2024

P.M. Edition for Oct. 24. Heard on the Street columnist Jon Sindreu discusses Boeing’s big goals and damaged finances. And WSJ Justice Department reporter Sadie Gurman says U.S. authorities see an unprecedented surge in threats relating to the presidential election. Plus, we exclusively report that Russia helped Yemen’s Houthi rebels target Western ships in the Red Sea. Tracie Hunte hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

People are the lifeblood of every organization, but they're also the greatest source of risk. That's why Mimecast has pioneered the connected human risk management platform to help your business protect collaboration, educate employees, and detect insider risk. Learn more at mimecast.com. As the Boeing's machinists continue to strike, how bad can the company's finances get? And U.S. officials say they're facing an unprecedented level of threats this election season. It's really this sort of boiling cauldron of different threats and Justice Department

officials haven't seen anything quite like it. Plus, Russia provided targeting data for Houthi assault on global shipping. It's Thursday, October 24th. I'm Tracy Hunt for the Wall Street Journal. This is a PM edition of What's News, the top headlines and business stories that move the world today. Let's start with Boeing. The jet maker's new chief executive, Kelly Ortberg, has many active fronts in his battle

to reset the company. He has to address the continuing labor strikes by Boeing's largest union, reestablish a culture of accountability, fix ongoing problems at the defense division, and figure out how to build innovative plane models again. And now he has to worry about the company's deteriorating balance sheet. Joining us to discuss Boeing's problems is heard on the street columnist John Sindrae. So John, how bad does Boeing's balance sheet look right now? Well, it depends on how you look at it really. If you're looking at assets, it's not so

bad. They have a lot of cash. They burned $2 billion in cash during the third quarter, great part because of this strike, and they still have almost 11 billion in cash and short-term investments. So Boeing doesn't have issues with liquidity. The problem is the liability side of the balance sheet. The debt, particularly the long-term debt, has been increasing nonstop. First they had the 737 max grounding crisis, then it was COVID. They had many production issues since and recently the the strike is the latest production stoppage that's making them burn approximately a billion in cash

a month is the estimate. Yeah, they've had to pile on debt and there isn't a lot of appetite by investors for them to pile up on more debt. So that's the issue they have. They have a lot of debt and they've basically promised to pay it back. And that will take a lot of cash, which right now they're not generating. Earlier this month, S&P Global Ratings placed Boeing on a watch list for potentially being downgraded to a speculative grade. If that happens, it would be the largest ever company to suffer this fate. What are credit rating agencies worried about?

Basically, what they're looking ahead to is 2025-2026. There's $12.5 billion in maturing debt that is due then. Another problem as well is they have this big inventory of parked planes. So theoretically, they can sell those planes and that's cash and that should help them out. The problem is in practice, it doesn't quite work like that because a lot of those planes we know have issues to fix. And that's something that Boeing now calls the shadow factory, which basically means you have to employ a lot of people to just fix planes that are theoretically finished. It's really the short term that the market is fixated on right now. If you look at it from the debt side, if you're an equity investor, I think you're concerned even a big

further down the line than that. So it's even a bit more complicated. What about the shareholders? What does this all mean for them? Well, as I say, if you're a shareholder, you're basically on it for the very long horizon at this point, if you're still bleeding cash next year, which is what Boeing has now said, and this is before they realized that the strike wouldn't be over.

So you're bleeding cash next year, you have to pay back, retire all the debt. So that's no earnings for you as an investor for years. And then, you know, you get a bit of breathing room, but you have to start thinking about, oh, the uncertainty of them investing in a new clean sheet airplane model. And that's going to turn out. Historically, the shares of plane makers go down when they make those investments and then when things look better,

they go back up. So we're talking, I don't know, a decade down the line. Of course, Boeing is relatively cheap if you look at their valuation, but not that much. It's not that much cheaper than Airbus. So you can just go and invest in Airbus, which is doing so much better. So it looks like it's going to be tough for equity investors in Boeing for quite a long time. Johnson Dreyou is a columnist for the Wall Street Journal's Heard on the Street. Thank you so much, John. Thank you so much, John. Thank you. In U.S. markets, Boeing's drop, along with IBM, which missed Wall Street's forecast

on revenue, weighed on the Dow, which closed down about 0.3 percent. The S&P 500 and the Nasdaq were up about 0.2 and 0.8 percent respectively. In other business news, Southwest Airlines and activist investor Elliott Investment Management said today that they've reached a deal to end their acrimonious four-month feud. The settlement gives Elliott a significant presence on its board, but not the majority control the hedge fund initially sought. Five of Elliott's proposed directors will be added to the airline's board, which will be reduced to 13 members next year. And Southwest's executive chairman, Gary Kelly, who served as the airline's CEO for nearly two decades, will leave the

board earlier than planned and hold the title chairman emeritus. Elliott and Southwest said a new independent chair will be named later. The airline did manage to keep CEO Bob Jordan, whom Elliott had initially looked to push out. Coming up, US officials say there's an unprecedented surge in election threats. That's after the break. People are the lifeblood of every organization, but they're also the greatest source of risk.

That's why Mimecast has pioneered the connected human risk management platform to help your business protect collaboration, educate employees, and detect insider risk. Learn more at mimecast.com. U.S. law enforcement officials say this election season comes with an unprecedented convergence of aggressors, foreign actors maneuvering to sow chaos, lone wolves like the men authorities say tried to assassinate Donald Trump, and homegrown extremists and conspiracy theorists spoiling for conflict. The officials have expressed confidence in the election process.

And note, political violence remains relatively uncommon in America. Yet, they worry threats alone could discourage voter turnout. Joining us now is Sadie Gurman, a reporter for the Wall Street Journal. So, Sadie, what are the kinds of threats officials are worried about? Sedy German, a reporter for The Wall Street Journal, is joining us now. So Sedy, what are the kinds of threats officials are worried about? Well, this election season is unique because officials are worried about threats coming from all different fronts. On the one hand, you have the threat of traditional terrorism, like we described in the story,

the case of an ISIS-inspired man who wanted to plot an election day attack on a large crowd. Then you also have warnings about sort of lone wolves inspired by claims of election fraud, who would be driven to violence. And then you also have disinformation campaigns and malign foreign influence from several different adversarial countries. So it's really this sort of boiling cauldron of different threats and Justice Department officials haven't seen anything quite like it. So what are they doing to prepare for these threats? They've started releasing more information about the malign foreign influence efforts than they have in the past to give voters some context

and some transparency about what is happening in the election before they hit the polls. Another thing that they're doing is something that they do every single year, which is there are election monitors stationed at certain polling places in different cities from the federal government to watch for rights violations like coercion or intimidation. There are also US attorneys, federal prosecutors stationed in US attorney's offices across the country who are there to field any sort of reports of law violations

or other problems. Those types of people exist in FBI field offices also. These are again things that the Justice Department and federal law enforcement have had in place for every election. But in this case, they say their muscle memory, having done this many, many times before, is going to prepare them for the threat environment that we're seeing today. How worried are officials about these threats affecting voter turnout? You know, some people just feeling too scared to go vote.

Well, I think that's also a top concern and that might be in fact one of the goals of some of these malign influence campaigns to just sort of rattle people enough that they won't show up at all. This is shaping up to be a really tight race. How worried are officials about potential violence by those unhappy with the results? I think that's one of their biggest concerns. The officials we spoke to don't think that we will see anything quite on the scale of the January 6th attack on the Capitol.

But nevertheless, what you could see are people motivated by those same election related grievances, animosity toward political opponents, and also baseless claims of election fraud, you know, conspiracy theories, driving people to take action on their own. And so I think that's some of the type of violence that's hardest to predict and remains one of law enforcement's top concerns. Siti Gurman is a WSJ reporter covering the U.S. Justice Department. Thank you so much, Siti. Thank you.

We exclusively report that Russia provided targeting data for Yemen's Houthi rebels as they attacked Western ships in the Red Sea with missiles and drones earlier this year, helping the Iranian-backed group assault a major artery for global trade and further destabilizing the region. A person familiar with the matter and two European defense officials said the Houthis, which began their attacks late last year over the Gaza war, eventually began using Russian satellite data as they expanded their strikes. A spokesman for the Russian government didn't immediately respond to requests for comment. A Houthi spokesman declined to comment.

And finally, we exclusively report that the Pentagon wants to bring Silicon Valley's top talent into the military. The Defense Department is considering asking senior tech professionals to take up high-ranking positions in the reserves to help with short-term projects in cybersecurity, data analytics, and other areas. Heather Somerville covers technology and national security for the Wall Street Journal. She told our tech news briefing podcast that tech startups and their financiers are embracing national security opportunities and that this represents a huge shift.

What is really interesting is this initiative dials into a changing view and changing sentiment in Silicon Valley about the military. For the past few decades, Silicon Valley has largely seen doing work for the military, working on projects that would have lethal force, to be totally unpalatable. That is not what tech companies, entrepreneurs, engineers wanted to do, generally speaking. In the past couple of years, that has dramatically shifted. And there's a number of reasons for that. Ukraine, the wars in the Middle East, the threat of a rising China, the need for greater technology advancements in warfare and a lot of enthusiasm by venture

capitalists for an area where they see great business opportunity. Remember, war is also good for business. Has really changed the sentiment. And you can hear more about this in our tech news briefing podcast. And that's what's the news for this Thursday afternoon. Today's show was produced by PRB anime with supervising producer Michael Kosmitis. I'm Tracy Hunt for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.

People are the lifeblood of every organization, but they're also the greatest source of risk. That's why Mimecast has pioneered the Connected Human Risk Management Platform to help your business protect collaboration, educate employees, and detect insider risk. Learn more at mimecast.com.