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Boeing Says Failure to OK Ex-Im Bank Factor in New Layoffs

The Boeing Co. (NYSE: BA) has said that it plans to cut several hundred jobs in its satellite business due to cuts in defense spending, a lack of orders for new satellites, and the failure of the U.S. Congress to reauthorize the U.S. Export-Import Bank after its charter expired at the end of June.

Last month Boeing customer Asia Broadcast Satellite cancelled an order for an $85 million communications satellite, citing the lack of Ex-Im financing as a reason for its decision to look outside the U.S. for a supplier that could offer export credit financing. The bank has supported about 60% of satellite sales by U.S. makers like Boeing, Lockheed Martin and Orbital ATK. By contrast, the bank supports only about 15% of commercial jet sales to foreign buyers.

Boeing’s space division has struggled for years with declining defense budgets and lower satellite sales. In the second quarter of 2015, revenues and income for the company’s network and space systems division were essentially flat, including a reduction of $40 million “related to lower performance on commercial satellite programs and our ULA [United Launch Alliance] joint venture [with Lockheed Martin].” The satellite program gets primary blame for a reduction of $62 million in operating income during the first half of the year related to “lower performance on various satellite programs” and an unfavorable catch-up adjustment of $32 million, again due to the satellite programs.

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In other words, Boeing’s satellite program is underperforming and the company is going to lay off staff because it is basically incapable of fixing the problems — admittedly not all of them of Boeing’s making — that plague the satellite business. Blame cuts in defense spending, a lack of new orders and no export-import bank instead of placing the blame where it belongs, at the feet of the company’s managers.

For Boeing to imply that it lost the Asian satellite order because the company cannot finance or guarantee the financing for one $85 million satellite is far-fetched. A more likely reason is that company does not want to take the first step down that slippery slope for fear that its critics and critics of the Ex-Im bank were right when they argued against the “Bank of Boeing.” And if that means that Boeing drags down the hundreds of smaller businesses that rely on the bank, well, that’s just collateral damage.

Boeing’s existing financing operation had a portfolio of $3.3 billion in customer financing and investments. The company’s free cash flow in the second quarter totaled $2.6 billion, and the company could certainly use $85 million of that to help with satellite financing. It chooses not to do so.

This is not the first time that Boeing has played the Ex-Im card. Late last month former CEO and current chairman James McNerney said that the company is considering moving some parts of its operations to countries that offer export credits. Since Boeing already outsources a fair bit of its parts business (21% of parts for the 777X will be made in Japan), a threat to send more jobs offshore has some potency.

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We get that Boeing’s satellite business is struggling, but to lay the problems at the feet of anyone but the company’s management is disingenuous.

After losing about 3.4% in Monday’s ugly trading session, Boeing’s shares are up nearly 3% Tuesday morning at $131.00, likely due to reports of the layoffs. The stock’s 52-week range is $115.14 to $158.83, and the low was posted Monday.

By Paul Ausick


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