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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