Those who suffered through the global financial crisis of 2008 may have hoped they would never need to hear the words “too big to fail” again. Unfortunately, the coronavirus crisis of 2020 brought widespread panic to the financial markets yet again, and many industries were brought to a halt in the first few months of the pandemic.
The concept of “too big to tail” is that some companies or industries are so important to the day-to-day functioning of American society that they simply can’t be allowed to collapse. In the 2008 economic crisis, banking and financial services were the main industries deemed “too big to fail.” In the ongoing coronavirus scare, other industries are taking center stage in the discussion. And although the stock markets have made an incredible recovery through the summer of 2020, the economic landscape is still fraught with peril, as millions of Americans remain unemployed and many businesses still are functioning far below capacity, if they’re even allowed to operate at all. Here’s a look at some specific companies that are encountering financial hardship that may ultimately need more help from the U.S. government.
Last updated: Aug. 24, 2020
Boeing is the world’s largest aerospace company and America’s biggest manufacturing exporter. In addition to producing iconic jet airliners, like the iconic Boeing 747 and the cutting-edge 787 Dreamliner, Boeing is also an important defense and space systems contractor. After enduring a stomach-churning collapse from its all-time high of $440.62 in 2019, the company’s stock price bounced back nicely from its spring 2020 low of $89. However, unlike many stocks that ran up to new highs in the summer 2020 stock market recovery, Boeing’s share price still lingered at $178.08 as of Aug. 14.
Why Boeing Is Too Big To Fail
Boeing’s essential position in American manufacturing is inarguable. As America’s largest manufacturing exporter, Boeing is a symbol of American manufacturing as a whole. Its role in global aviation is indisputably critical. If you’ve taken an airline flight lately, for example, odds are good that you were on a Boeing product, such as the workhorse Boeing 737. Boeing is also an essential defense and space contractor for the U.S. government. Now trading nearly 60% off its all-time high stock price in 2019, Boeing is still reeling, reporting a 65% loss in revenue in its commercial aircraft unit, a $2.4 billion quarterly loss and the likelihood of further job cuts.
Thanks to countless travel restrictions and outright bans due to the coronavirus outbreak, Delta Airlines is reeling. On March 18, the airline indicated that it would be slashing capacity by 70% and parking over half of its planes amid a $2 billion drop in monthly revenue. At the time, the company warned that its international routes would drop by more than 80% through May or June. Even that dire prediction turned out to be rosy, as the company ended up slashing domestic capacity by 80% and international flights by 90%. In an amazing feat of fiscal management, however, Delta has recently reduced its daily cash burn to “only” $27 million, down from $100 million, even though revenue remains at 20% of 2019 levels.
Why Delta Is Too Big To Fail
Delta is one of the four largest U.S. airlines, vying with American Airlines for the crown of U.S. domestic market share. From June 2019 to May 2020, Delta carried 17.7% of all American fliers, just above American’s 17.6% share. With the global airline market essentially shutting down due to the coronavirus outbreak, Delta is still in dire need of assistance, even with its recently improved results.
During the coronavirus crisis, Delta’s stock suffered its greatest one-day decline in history, falling 26% on March 18 alone. After recovering a bit, Delta’s stock still remains more than 50% below its all-time high of $63.16 set in 2019.
American Airlines is in the same boat as its competitor, Delta Airlines. In terms of the number of passengers flown and other metrics, American is either the world’s largest airline or at least in the top three. Thus, the collapse of the global aviation industry due to the coronavirus is an existential threat. Like Delta, American parked hundreds of planes, slashed routes and asked employees to take as much as 12 months of unpaid leave.
Why American Airlines Is Too Big To Fail
In the wake of this global crisis, the stock of American Airlines is getting hammered. On March 18, the stock price fell 25% alone. American’s share price is still far below its 2006 high, but it also still trades more than 50% below its more recent February 2020 high. The company lost $2.1 billion in its most recent quarter. As one of America’s global aviation leaders, the company needs to survive to ferry travelers when the economic recovery occurs, no matter how far in the future that may happen.
United Airlines rounds out the trifecta of legacy U.S airlines in significant trouble. Like Delta, United is cutting its domestic capacity by 70% and its international routes by 80% over the next two-to-three months. Parking more than half of its fleet, encouraging more than 10,000 employees to take unpaid leave and trimming costs in other ways may save the company $4 billion in expenses, but it’s still in dire need of a financial lifeline.
Why United Airlines Is Too Big To Fail
United’s stock fell over 30% on March 18 alone, a loss even greater than its competitors. The company’s share price now sits more than 62% below its all-time high from November 2018. In spite of its cost-reduction moves, United reported a net adjusted loss of $2.6 billion in its latest quarter, with revenues down 87.1% year-over-year. The development of a viable coronavirus vaccine could be critical to the future operations of United and other airlines.
Marriott, along with other global hotel chains, is in the midst of a standstill. With people around the world told to self-quarantine and global airline flights grinding to a halt, hotel occupancy is plummeting. Marriott, the world’s largest hotel company, extended furloughs to Oct. 2. On the customer service side, Marriott is allowing fee-free changes up to 24 hours before a stay to all reservations through Sept. 30, which will no doubt result in frequent cancellations. Ultimately, the pandemic will end and travelers will need places to stay, which pushes Marriott into too-big-to-fail consideration.
Why Marriott Is Too Big To Fail
The crisis in the hotel industry could be even more far-ranging than with the nation’s airlines. Marriott and other hotel companies, including Hilton, have asked for $150 billion in direct aid to the industry, far more than the $50 billion-plus requested by the airlines. Predictably, Marriott’s share price has tanked throughout the ordeal. The parent company of Ritz-Carlton and some of the world’s most prestigious hospitality brands has cratered from a Dec. 26, 2019, high of $153.13 down to about $64 in mid-March, a drop of more than 58%.
Carnival, Royal Caribbean and Norwegian Cruise Lines
The nation’s three largest cruise operators have had their share of bad press over time, with sporadic power outages or outbreaks of norovirus causing a kink in operations. However, the advent of the coronavirus has been nothing but an unmitigated disaster for the cruise lines, which are all currently shut down for the foreseeable future. The Centers for Disease Control and Prevention currently has a no-sail order in place through September 2020, and some cruise lines have canceled voyages even further into the future.
Why the Cruise Lines Are Too Big To Fail
The cruise industry has absolutely exploded in recent years, with recent projections anticipating annual growth rates of 26.3%, with expected revenue of over $28 billion by 2023. Thanks to the coronavirus, those estimates are likely to be revised heavily downward. In fact, the stocks of all three major cruise operators are trading as if they are headed for bankruptcy. Norwegian Cruise Line shares hit a 52-week high of $59.78 but fell as low as $7.03 during the initial stages of the pandemic. Its industry colleagues have hardly fared better, with Royal Caribbean shares tumbling from a 52-week high of $135.31 to a 52-week low of $19.25 and Carnival following suit, crashing from $51.94 to $7.80. All of those declines reach 85% or more. As of August 2020, no governmental relief for the cruise lines appears to be coming.
Simon Property Group
Simon Property Group may not be a household name like many of the companies on this list, but the company may play a greater role in your life than you imagine. Simon Property Group is the largest mall operator in the U.S., so if you ever shop in a mall, you’ve likely visited one of its properties. When the outbreak first became a pandemic, Simon Property Group initially shuttered all of its malls nationwide for at least 12 days, beginning on March 18. Since then, malls around the nation have opened and closed in fits and starts. As mall traffic was already slowing before the health crisis, the on-again, off-again mall shutdowns could prove devastating in the long haul.
Why Simon Property Group Is Too Big To Fail
Americans love to shop, and there’s no doubt they’ll continue to shop once the current crisis subsides. However, this may last quite a long time. Additionally, the shutdown of physical locations could give an even greater edge to e-commerce retailers like Amazon, who have been consistently taking market share away from mall operators for years. The formerly stable share price of Simon Property Group has taken a shellacking, falling to a low of $42.25 from a 52-week high of $163.60. This amounts to a 74% drubbing.
Ford Motor and the Auto Industry
The global auto industry is incredibly cyclical in nature. During economic contractions or recessions, demand for hard goods like autos plummets. During severe declines, auto companies run on the brink of disaster. The 2008 financial crisis, for example, forced both General Motors Co. and Chrysler into bankruptcy. All three automakers closed all of their North American factories amidst the outbreak. There is a ray of light emerging for the car companies, however. GM resumed production on May 18, and since then car sales have been picking up.
Why Ford and the Auto Industry Are Too Big To Fail
Quite simply, the automakers are essential to the American economy because Americans love their cars. Although foreign automakers have made inroads, American automakers are still a critical part of the demand part of the equation in the U.S. Further, the auto industry still drives $953 billion into the American economy. For the industry to go under is therefore unfathomable for America as a whole. Yet, the stock prices of these companies have suffered mightily during the pandemic. Although Ford’s stock is decades from its all-time high, it still fell from over $12 per share in March 2020 to under $4 before recovering to just over $7.
MGM Resorts and the Casino Industry
In a previously unthinkable move, MGM Resorts announced that effective March 17 it would be temporarily shutting down all of its Las Vegas properties. The manager of such prestigious properties as Aria, Luxor, Mandalay Bay and Bellagio initially indicated it would keep paying employees and extending health benefits for two weeks. Vegas casinos remained closed until June 4, but there’s still doubt about their long-term recovery, as the virus has continued to keep travel down.
Why MGM and the Casino Industry Are Too Big To Fail
MGM and the other American casino operators certainly can’t claim to be an “essential” industry in the vein of the airline or auto industries. However, entertainment is big business. The casino industry pulled in a whopping $12 billion in gaming revenue in 2019 alone. Love it or hate it, Las Vegas is one of the crown jewels of the American economy. However, in the wake of the pandemic, the dominant casino operators traded as if they were headed for bankruptcy. MGM shares traded as low as $5.90, down from a 52-week high of $34.63, a drop of more than 80%. As groups are a big source of revenue for the casino industry, it will likely take a vaccine to restore earnings to prior levels.
General Electric was one the bluest of Blue Chip stocks in the venerable Dow Jones Industrial Average. Since 2000, however, it’s had one arrow after another thrown at its business. The coronavirus has accelerated the downward trend at GE, as seemingly all of its disparate businesses are getting hit. The very definition of a conglomerate, GE has large business divisions in industries ranging from oil and gas production to aviation, healthcare, renewable energy and financial services. In other words, GE companies provide a wide range of services for all walks of life in America, and it’s hurting — particularly its aircraft division, as the industry is in free fall.
Why General Electric Is Too Big To Fail
The stock of General Electric has been in a 20-year downtrend after peaking at $60 in 2000. However, the stock had come off its lows and was trying to trend higher in early 2020, hitting a 52-week high of $13.26 in February. The coronavirus scare has taken all the wind out of GE’s sails, however, as the stock fell all the way down to $5.48 before recovering to the ominous share price of $6.66 as of Aug. 14. However, this is one time that “too big to fail” GE might not get a lifeline. Although GE got a bit of a lifeline in the form of a government contract to produce ventilators, there haven’t been any announcements about government assistance for GE.
Chevron and ‘Big Oil’
The coronavirus pandemic has created a worldwide reduction in demand for oil. With hardly any planes flying, manufacturing grinding to a halt and citizens across the globe being asked to stay in their homes, demand for oil has dried up. As if that wasn’t enough of a headwind, in the initial days of the crisis, Chevron and the other “Big Oil” companies were caught in the middle of a price war between Saudi Arabia and Russia, exacerbating the price decline for a barrel of oil. Since oil companies have a more-or-less fixed cost of production for each barrel, the lower the price goes, the less profit they can make — or the bigger loss they can generate. As a result, Chevron outlined $2 billion in cost-cutting moves to help keep it afloat, and competitor Occidental Petroleum announced an 86% cut to its dividend.
Why Chevron and ‘Big Oil’ Are Too Big To Fail
In spite of the current drawdown in demand, the bottom line is that oil is still the fluid that keeps the American economy pumping. From airlines to autos to industry, oil is a necessary component of a healthy economy. However, in an interesting twist, Big Oil is going to avoid “failing” in this economy not because of a government bailout. In fact, Big Oil has gone out of its way to express how much it does not want government funding during the coronavirus crisis. Rather, the industry will survive because oil is always in demand and the companies know right where the supplies are. Some weaker players may go bankrupt or be bought up by the survivors, but there will always be a Big Oil industry, even if some of the names change. Chevron is currently about 28% below its recent high, but it has already rebounded 75% off its 52-week low.
Bailing Out the American Consumer
In the background of all this talk of “too big to fail” is the American consumer. The American consumer is the true economic workhorse of the economy, contributing a whopping 70% of American economic growth. If the American consumer falters, so too does the American economy as a whole, regardless of what big business does. As a result, Congress and the Trump administration unveiled a $2 trillion stimulus package in late March. One of the cornerstones of the package was a $1,200 payment to individuals earning less than $75,000, plus an additional $500 per eligible child. Another major benefit was a $600 weekly federal supplement to state unemployment checks. As of mid-August, Congress was currently debating an additional stimulus package, with a second $1,200 check and extended unemployment benefits likely. President Donald Trump also used an executive order to defer payroll tax until the end of the year. All-in-all, these extra payments to consumers share the aim of keeping the economy afloat.
PPP and EIDL Loans
In addition to handing out cash to American taxpayers, the U.S. government came up with a series of loans and grants to help struggling businesses survive the coronavirus pandemic. The Paycheck Protection Program offered low-interest loans to businesses in need of immediate funding. If the funds were used as intended — to keep workers on the payroll — many of those loans qualified for forgiveness. Currently, Congress is debating how to extend the PPP program, which expired on Aug. 8.
Economic Injury Disaster Loans, or EIDLs, were traditionally reserved for businesses impacted by a major disaster, such as a flood or a tornado. However, since the entire country was declared a disaster area due to the spread of the virus, most small businesses in America, including nonprofits and agricultural businesses, became eligible to apply for the loans. Additionally, grants of $1,000 per eligible employee, up to a maximum of $10,000, were provided for businesses that applied for these loans. The grant money has since dried up, but the loans, which have terms of 30 years and interest rates of 3.75% (2.75% for nonprofits), still remain.
The Bottom Line
On one hand, it seems like the idea of “bailing out” any industry is inherently anti-American. After all, the U.S. is the land of the free and the home of unfettered capitalism, so it only seems fitting that companies should rise and fall on their own merits. However, the economic reality is that some of the largest industries hold up the very fabric of American society.
Imagine an America with no auto industry, no aviation industry, no gasoline and no retail shops. While that might sound like utopia to a select few, the reality is that most Americans love their cars, love to travel and love to shop. This makes governing harder, as elected representatives have to walk the fine line between laissez-faire economics and keeping an economy alive in a time of crisis. However, government assistance had been flowing during the start of the coronavirus pandemic, with big businesses pulling in about $500 billion from the $2.2 trillion aid package. With other stimulus likely to follow, the government seems to be ready to prop the economy in any way possible.