Grants, low-interest loans and other government support might seem like manna for businesses under financial strain. But some chief executives and corporate boards might balk at the offer of billions of dollars in aid to help them ride out the coronavirus pandemic and keep the economy from sliding into a deep recession.
Already, some corporate leaders are bristling at the potential terms of the grants and loans authorized by the stimulus legislation President Trump signed last week. Boeing’s chief executive, David Calhoun, for one has suggested that the aerospace company could raise money elsewhere if it found the government’s terms too onerous.
The Treasury Department, led by Steven Mnuchin, a former investment banker, might try to avoid imposing conditions that companies find burdensome. But if the aid appears too lenient, popular support for the rescue could evaporate as it did with the bailout of banks and other businesses after the 2008 financial crisis. And some lawmakers and experts argue that Mr. Mnuchin ought to resist the temptation to cut businesses too sweet a deal to prevent them from walking away from the government’s offer.
“Either they don’t need money, which means they shouldn’t get the money,” Senator Elizabeth Warren, Democrat of Massachusetts, said in an interview. “Or maybe they really do need it, in which case they should agree to some restrictions on how the money is spent.”
Taking a tougher line with companies could bolster the overall economic impact of the aid. Demanding that companies maintain hiring levels, for example, might mean that more people have money coming into their bank accounts, allowing them to spend on necessities and pay the rent or mortgage, said Phil Angelides, a former treasurer of California and chairman of the Financial Crisis Inquiry Commission, which was created by Congress in 2009.
“It is more important to keep workers on the payroll, even if they’re at home — that needs to be the pre-eminent condition,” Mr. Angelides said.
Of course, with revenues falling off a cliff and losses piling up, some companies may be so desperate that their chief executives happily accept terms like a temporary ban on companies buying their own shares, a condition that airline executives have said they are willing to accept. Others may accept aid simply because the public wants them to.
One big difference between the economic problems of today and the 2008 financial crisis is that most of the companies in need of relief are not suffering from self-inflicted wounds. “That’s obvious to most people, and a C.E.O. will have this defense at his or her disposal,” said Tony Fratto, a former assistant secretary of the Treasury and a former deputy press secretary for President George W. Bush.
Right now, policymakers are keenly watching how airlines and Boeing might respond.
Congress’s rescue legislation identified airlines as eligible for federal aid and earmarked up to $25 billion in grants and another $25 billion in loans for the industry; cargo carriers have been offered $8 billion in grants and loans. Boeing is expected to be the biggest recipient of up to $17 billion lawmakers set aside for businesses considered crucial to national security. The act also authorizes the Treasury to provide $454 billion to back loans made by the Federal Reserve, which would enable the central bank to extend an additional $4 trillion of credit to businesses in all industries.
Some of the restrictions set out by the legislation, like a temporary halt on companies using their own money to buy back stock, appear to apply to all company loans. But a commitment by companies to maintain hiring at or close to recent levels is not required across the board. It would apply to the aid for airlines and companies deemed important to national security, but only through the end of September. On Friday, United management told staff that the federal aid would prevent any substantial reductions in staff or pay through September, but suggested that layoffs may come if the recovery was as slow as the company expected.
Treasury could also demand stock in exchange for supporting airlines and companies like Boeing.
For some executives, giving the government shares in their company could be a big sticking point. In a TV interview last week, Mr. Calhoun, the Boeing chief executive, suggested he would not be interested in a rescue package that gave the federal government stock in the company.
“I don’t have a need for an equity stake,” he told Fox Business. “If they force it, we just look at all the other options, and we’ve got plenty of them.”
While the government has laid out initial guidance on terms for the $17 billion available to companies deemed essential to national security, it is expected to release more specific terms in the coming days. Until those terms are clear, Boeing is holding off on making a decision, two people briefed on the company’s deliberations said.
The airlines have not set out a clear position on giving the taxpayer stock.
On Thursday, the chief executive of Southwest Airlines, Gary Kelly, told employees that the airline planned to apply for the grants to pay workers, but a spokesman declined to say whether the airline would be willing to give the government an equity stake in exchange for the assistance. Last week, Mr. Kelly said that the legislation only “gives us another option” and that the company could also “raise capital in the private markets.”
American, which has said it would seek aid from the government, referred questions about whether the government should take a stake in airlines to Airlines for America, an industry group. The group and United Airlines declined to comment. Delta Air Lines did not respond to a request for comment.
But on Wednesday, the unions that represent flight attendants at several major airlines urged Mr. Mnuchin not to exercise his power to take stock in the airlines. They argued that if he did so, he could scare off executives from accepting the aid, which would, in turn, mean more layoffs.
Congress did not make the rules surrounding equity stakes particularly onerous. In addition to giving Mr. Mnuchin discretion about whether Treasury takes any stake at all, the legislation prohibits the Treasury from exercising “voting power with respect to any shares of common stock acquired.” That means companies don’t have to worry about the government’s participating in important shareholder decisions. And the act says the Treasury can accept senior debt instead of equity.
Of course, companies that are running low on cash don’t have much time to negotiate with the government.
Without the federal aid, three big airlines — American, Delta and United — have only about four to five months before they would have to start making deep cuts or take out new loans, Moody’s Investor Service said in a report published on Wednesday. With it, they have an estimated eight months of financial cushion.
“The federal grant money will be the most significant relief valve for alleviating pressure on the airlines,” Moody’s said.
Large retailers, in a frantic effort to conserve cash, have drawn down credit lines and are laying off or idling thousands of employees. Macy’s, which announced this week that it was furloughing the majority of its 125,000 employees, said in a statement, “We are also working both directly and through our retail associations to assess any government relief bill and advocate for Macy’s Inc. and the industry.”
Congress required fewer restrictions on the loan programs that will be set up with the $454 billion of Treasury backing. The legislation does not demand that companies taking out loans from these programs maintain hiring levels.
It is unclear how hard a line Mr. Mnuchin will take with chief executives. One approach might be to tell reluctant executives that their participation is needed for the whole effort to work. Henry M. Paulson Jr., who was Treasury secretary in 2008, told chief executives of large banks that they needed to take billions of dollars in taxpayer funds regardless of whether they agreed with the government’s terms, which many people across the political spectrum criticized. His goal, in part, was to avoid having investors consider banks that took the money as weak if stronger financial institutions did not accept the cash, too.
The executives, after some objections, quickly agreed. “This is the right thing to do for the country,” Mr. Paulson told them.
Michael Corkery contributed reporting.
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