Pentagon, Treasury Have $17 Billion Stimulus Money to Lend, But There's Little Interest
May 03 2020 - 09:29AM
Dow Jones News
By Doug Cameron
Defense and Treasury department officials can't agree on the
fate of a $17 billion federal loan program set up to help companies
crucial to national security weather the coronavirus crisis.
The fund was once widely believed to be aimed at supporting
Boeing Co. as it struggles with the aftermath of 737 MAX grounding
and the virus-related downturn in commercial aviation, according to
lawmakers who closely tracked the stimulus legislation. But the
aerospace giant on Thursday said it had no plans to seek federal
funds after raising $25 billion from private investors.
Now, few companies pursued the funding as the application
deadline passed Friday -- and a senior Pentagon official has
questioned whether the Treasury Department's conditions for the
loans align with the needs of Defense Department contractors.
The funds are part of the broader payroll-support program
approved by Congress, with most defense contractors continuing to
work after being deemed essential. Although, Pentagon officials
said financial strains have started to emerge among smaller
suppliers. Many do work for aerospace giants like Boeing and Airbus
SE, which this week announced plans to reduce production because of
the collapse in demand from airlines hobbled by virus-related
travel restrictions.
The program aims to help companies maintain staffing levels and
is separate from other stimulus efforts directed at smaller
businesses.
The Treasury Department requirements, published last month,
focused on companies working on what is known as DX programs, which
include Pentagon priorities such as refreshing nuclear weapons
systems, classified satellite programs, missile defense and
replacing presidential aircraft and helicopter fleets. Boeing had a
leading role in some of those areas.
However, the Pentagon's undersecretary for defense acquisition,
Ellen Lord, said that the program may not be suitable for public
companies.
"I am not sure DX entities are the ones that have the most
critical needs," Ms. Lord said on Thursday.
She said only around 20 companies had at the time expressed
interest in the Treasury loan program, which carries strings such
as limiting layoffs to 10% of a company's workforce and barring
stock buybacks, as well as government equity stakes that may be
inappropriate for some national security contractors.
Defense contractors also said they were concerned about the
conditions and the small number of applications. The Pentagon has
more than 10,000 primary contractors.
"Two of the most critical tools businesses need in a crisis are
cash flow and flexibility, and they need both things quickly," said
Eric Fanning, chief executive of the Aerospace Industries
Association, a trade group.
Mr. Fanning, a former Pentagon acquisition official, said some
of the federal stimulus programs didn't match industry needs. He
added the Pentagon's efforts to address the issue could boost take
up by companies.
Treasury Department officials consulted with the Pentagon before
it announced the eligibility requirements for the loans, a senior
administration official said.
The Treasury Department said it didn't expect any delays in
disbursing funds, but declined to comment on how many companies had
applied.
While the Pentagon has identified weaknesses in its supply chain
because of coronavirus-related plant closures and travel
restrictions, there are several other avenues for defense companies
to pursue for federal stimulus.
The Pentagon has already accelerated some contract payments to
big defense contractors such as Lockheed Martin Corp. That money
has flowed down the supply chain to small companies, said Ms.
Lord.
Kate Davidson contributed to this article.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
May 03, 2020 09:14 ET (13:14 GMT)
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