Financial_Times_UK 28Jan2020

Tuesday28 January 2020 ★ FINANCIAL TIMES 17

on “the Bank of Commercial” to cover

upfront losses on big contracts, Mr

Aboulafia said.

Share buybacks are likely to remain

off the table throughout 2020 and possi-

bly 2021, Mr Fraser said. Boeingbought

back $43bn f its stock between 2013o

and the first quarter of 2019, shrinking

the number of outstanding shares by 25

per cent. Critics have charged that the

company was more interested in pro-

viding shareholder returns than sinking

profits into engineering.

Boeing will report quarterly earnings

tomorrow.Cai von Rumohr, Cowen ana-

lyst, wrote in a January 22 note that the

now-extended timetable to return the

Max to servicewould hurt those earn-

ings in two ways.

Boeing has already taken a more than

$5bn charge for payments it will owe to

airlines for delayed delivery of the Max

and Cowen had forecast Boeing would

raise customer compensation reserves

by $6bn. Meanwhile, the stated costs of

producing the Max were expected to

swell by $4bn. Both of those estimates,

Mr von Rumohr wrote, now look low.

downgrade could be coming and that it

was reviewing the A-minus rating it

gave Boeing just last month. It could cut

the rating if its analysts believe the “Max

grounding had weakened Boeing’s com-

petitive position such as by perma-

nently damaging its reputation with

customers and regulators”, it said.

Greg Smith, chief financial officer,

said last year that Boeing had “a lot of

levers” to pull to maintain financial flex-

ibility.

That might include delaying capital

expenditures, Mr Fraser said, adding: “I

sense there’s a general level of belt-

tightening.”

Another possibility is that Boeing bids

less aggressively for defence work, said

Richard Aboulafia, analystat the Teal

Group. The strength of the company’s

commercial aircraft business histori-

cally allowed it to undercut competitors

and win contracts such as the US Air

Force T-X advanced jet trainer, MH-

missile field-support helicopter and the

US Navy MQ-25 aerial refuelling drone.

With the Max crisis causing a big cash

burn, Boeing’s defence arm cannot rely

quarter, to repay an approximately $1bn

maturing debt or to refinance commer-

cial paper debt that has grown more

expensive as the company’s credit pro-

file has worsened.

Boeing also has a $4.2bn cash pay-

ment coming up for the acquisition of

Brazilian jet maker Embraer’s commer-

cial aircraft business — a deal it had

hoped to close by May — although Euro-

pean regulators requested additional

information last week which will proba-

bly delay the transaction’s closing date.

The effort to secure the new loan

comes just months after Boeing

increased its revolving credit facility

with its lenders to $9.6bn.Bank of

America,Boeing,Citi,JPMorgan,Wells

Fargo nda Morgan Stanley eclined tod

comment.

Boeing retains a solidly invest-

ment-grade credit rating

despite the downgrades by

Fitch and the two biggest

rating agencies S&P Glo-

bal and Moody’s.

But S&P warned last

week that a second

C L A I R E B U S H E Y— C H I C AG O
E R I C P L AT T— N E W YO R K
J O E R E N N I S O N— LO N D O N

The 737 Max crisis has taken a toll on
Boeing’s financial health, torching cash,
prompting credit rating downgrades
and forcing the plane maker to seek a
new $10bn loan.
But while Boeing announced in April
that it would pause share buybacks,
David Calhoun, the new chief executive,
saidlast week that the board never dis-
cussed halting a dividend that last year
paid $3.9bn. Boeing “will stay on that
path unless something dramatic
changes”.
The aerospace manufacturer will this
week provide more detail on the finan-
cial trade-offs it may have to make after
the worldwide grounding of the Max
transformed the company’s workhorse
jet from a growth driver to a cash sink.
Boeing’s finances are at “some point
between a bad case of the flu and a heart
attack — in an otherwise healthy person
able to recover”, said analyst Craig Fra-
ser at Fitch Ratings, the credit rating
agency, which downgraded Boeing’s
investment-grade debt this month.
The company’s defence and services
businesses retained healthy revenues,
margins and cash flows, he pointed out.
“Once the cash drain to the Max ends,
the entire company will be pulling in the
same direction again.”
But how soon? Analysts placed the
cost of the grounding between $15bn
and $20bn before Boeing said a week
ago that the Max would remain earth-
bounduntil mid-year. Eachmonth of
extra delay costs the company about
$1.5bn, said Ron Epstein, Bank of Amer-
ica Merrill Lynch analyst. Some analysts
think Mr Calhoun is setting a conserva-
tive timetable to avoid repeating the
overly optimistic predictions that led to
theousting of his predecessor,Dennis
Muilenburg.
ButFitch estimates the company’s
debt nearly doubled last year to approx-
imately $27bn. Its free cash flow col-
lapsed asBoeing ontinued to makec
planes even as it was barred from deliv-
ering them to customers. Free cash flow
went from $11.1bn in the first nine
months of 2018 to a $1.6bn outflow for
the same period a year later. Boeing
stopped Max production this month.
It is working with its bankers to secure
a new $10bn loan that would help fortify
its balance sheet, according to multiple
people briefed on the matter, and has
received commitments from several
large lenders including Bank of Amer-
ica, Citigroup, JPMorgan Chase, Wells
Fargo and Morgan Stanley.
As the company continues to work
with regulators on the changes needed
before the Max can be certified safe to
fly, the loan has been structured to give
Boeing plenty of flexibility.
It is a delayed-draw loan with a two-
year maturity, which would give Boeing
access to the funds at a future date,
according to one of the people briefed.
The largest banks that have com-
mitted to the financing are
expected to contribute
roughly $1.5bn to $1.6bn
each to fund the loan pack-
age.
Mr Fraser said the loan
could be used to cover Boe-
ing’s cash burn in the first

Boeing to unveil belt-tightening

measures as Max crisis drains cash

Quarterly earnings report will this week provide more details of trade-offs needed as plane maker seeks $10bn loan

Boeing is burning cash

Free cash flow (bn)

Sources: Company filings; Jeeries estimate (); Refinitiv

-









         

-

Boeing stock weighed down by Max crisis

Share price ()











  

Crash of Lion

Air flight 

Boeing issues an

operations bulletin

Crash of Ethiopian

Airlines flight ET

 Max grounded

worldwide

CEO Dennis

Muilenburg ousted

Damaging emails

revealed

Boeing has halted buybacks but

maintained its dividend

Cash returns to shareholders (bn)















        

Share buybacks

Dividends

J U D I T H E VA N S —LO N D O N
R O M A N O L E A R C H Y K —K Y I V

The Ukrainian billionaire Rinat
Akhmetov hasbought a €200m villa
on the French Riviera from the Cam-
pari group, in the latest example of the
ultra-wealthy ploughing money into
realestate.

The purchase by Mr Akhmetov’s com-
pany of the 19th-century Palladian
mansion and botanical gardens adds to
a property portfolio that already
includes one of the UK’s most expensive
apartments, apenthouse in London’s
One Hyde Park.
Mr Akhmetov, born a coalminer’s son
in the eastern region of Donetsk, is
Ukraine’s wealthiest oligarch, with a
portfolio valued by Forbes at $6.7bn.
Through his company,System Capital
Management, he owns a stake in the
mining and steel firmMetinvest Group
along with holdings spanning energy,
engineering, finance, retail and real
estate. He is also president and owner of
the football club Shakhtar Donetsk.
A statement seen by the FT yesterday
said Mr Akhmetov’s company had

bought the mansion, known as Villa Les

Cèdres, in Saint-Jean-Cap-Ferrat, after

the Italian drinks maker announced its

sale last year. The deal was confirmed by

another person familiar with the situa-

tion. Mr Akhmetov’s company declined

to comment on whether he would use it

as a private residence.

The statementsaid: “SCM Holdings

Limited investment company

announces the acquisition of a real

estate asset, Villa ‘Les Cèdres’ (France),

from the Campari Group. The company

views the asset as a long-term invest-

ment.

“For SCM Holdings Limited, real

estate is a key business area for invest-

ment in Europe and North America

along with mining and metals, energy,

media and transportation.”

Villa Les Cèdres, an 18,000 sq ft man-

sion on the coast, was constructed in the

1800s and its grounds were later

extended to create what the Campari

group last year called “one of the prime

botanical gardens worldwide”. The

ornately decorated home belonged to

Belgium’s King Leopold II before being

sold to the Marnier-Lapostolle family,

creators of Grand Marnier liqueur.

Davide Campari-Milano, which pro-

duces the eponymous aperitif, along

with about 50 other drinks, said last

August it had reached a preliminary

agreement to sell the villa for €200m to

an unspecified buyer for private use.

Estateagent Savills had originally mar-

keted it at €350m.

The Italian company acquired the 14-

bedroom mansion with 35 acres of land

as part of its purchase of Société des Pro-

duits Marnier Lapostolle n 2016.i

Mr Akhmetov rose to prominence as

he bought up steel and mining assets in

Ukraine in the early 2000s. He was still

based in Donetsk hen Russian-backedw

separatists began fighting Ukrainian

forces there in 2014.

The price of Mr Akhmetov’s latest

property purchase exceeds the £137m

hepaid n 2011 fori his apartment inOne

Hyde Park, making it what was then the

UK’s most expensive flat.

Property

Ukraine’s richest man buys €200m villa from Campari group

Rinat

Akhmetov’s

purchase of the

19th-century

Palladian

mansion and

botanical

gardens of Villa

Les Cèdres, adds

to a property

portfolio that

already includes

one of the UK’s

most expensive

apartments

Marlene Awaad / Bloomberg

Boeing needs to

fortify its

balance sheet

after the 737

Max grounding,

but new chief

David Calhoun,

below, appears

unwilling to halt

dividends

Gary He/Getty Images

Boeing’s

finances are

at ‘some

point

between a

bad case of

the flu and a

heart attack

— in an

otherwise

healthy

person able

to recover’

COMPANIES

OW E N WA L K E R

A star K stockpicker has apologisedU

for takingtoobigabetonWirecard,the

German payments group facing

questionsoveritsaccountingpractices.

Alexander Darwall, who quit UK asset

managerJupiter ast year to set up hisl

own fund business, at one point had

more than 17 per cent of his £1bn invest-

ment trust in the high-flying payments

company that was propelled into

Germany’s Xetra ax index in 2018.D

A person close to Jupiter, which until

last year was a top-five shareholder in

Wirecard, said theasset manager’s exec-

utives had confronted Mr Darwall over

the size of the holding in the months

beforehis departure.

“Wirecard I got wrong in two senses,”

Mr Darwall said in a video posted on his

new company’s website. “One is clearly

the share price performance has been

disappointing. And I must apologise to

people for having too much in it, which

is a fault I accept.”

Mr Darwall’s new business,Devon

Equity Management, replaced Jupiter as

the fund manager of the FTSE 250 Euro-

pean Opportunities Trust.

Wirecard is still the fund’s largest

holding but has dropped to 10 per cent

of the portfolio because of the fall in the

share price over thepast 12 months.

Wirecard has lost about a fifth of its

market value since last January when

theFinancial Times reported hat a sen-t

ior executive was suspected of using

forged and backdated contracts in a

string of suspicious transactions.

Wirecard commissioned an account-

ing probe by KPMG after the FT in Octo-

berpublished documents hat appearedt

to indicate a concerted effort to inflate

sales and profits fraudulently. The com-

pany has categorically denied impropri-

ety and said the conclusions drawn by

the FT about the files were incorrect.

Mr Darwall said he remained a sup-

porter of the German ompany.c

“Wirecard is a great company and if I

continue to be correct in that work, we

will get rewarded in the stock price in

due course,” Mr Darwall added in the

video. “All I need now is a bit of patience

and I’m sure we are going to do well.”

Mr Darwall was able to make such a

big commitment to Wirecard because of

the investment trust structure — rules

governing open-ended funds prevent

managers investing more than 10 per

cent of their portfolio in any one entity.

When Mr Darwall announced he was

leaving Jupiter, analysts at UBS pre-

dicted that clients representing up to

£3bn of the company’s £45bn in assets

could follow him out he door, triggeringt

a drop in the group’s own share price.

The two portfolio managers Jupiter

brought in to replace Mr Darwall sold

more than £500m of Wirecard shares

from the group’s flagship European

funds late last year. Jupiter confirmed it

was no longer an investor in Wirecard.

In the video, Mr Darwall revealed that

another client had joined him at his new

venture. He also hinted that a third

former client could soon sign up.

“We might well have a very small

institutional [fund] in the new year,” he

said in the video. “We’ll probably do that

because we have a very old client who is

insistent that we provide some way for

them to invest.”

Financials

Stockpicking

star Darwall

apologises for

betting too big

on Wirecard

JANUARY 28 2020 Section:Companies Time: 27/1/2020- 19:56 User:gerry.white Page Name:CONEWS2, Part,Page,Edition:LON, 17, 1