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 has brought widespread panic to the financial markets yet again, as many industries have simply ground to a halt.
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. Here’s a look at some specific companies that are encountering incredible financial hardship that may need a helping hand from the U.S. government.
Last updated: March 19, 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. Although the company’s stock price had already come off it’s all-time high of $440.62 in 2019, its decline in 2020 has been nothing short of horrific, with shares now trading just over $100 per share.
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, the 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 more than 75% off its all-time high stock price in 2019, the company is asking for a minimum of $60 billion for the aerospace manufacturing industry as a whole.
Thanks to countless travel restrictions and outright bans due to the coronavirus outbreak, Delta Airlines is reeling. On March 18, 2020, the airline indicated that it would be slashing capacity by 70% and parking over half of its planes amidst a $2 billion drop in monthly revenue. The company warned that its revenue drop in April could be even worse, with international routes dropping by more than 80% through May or June.
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. In 2019, Delta carried 17.5% of all American fliers, just shy of American’s 17.6% share. With the global airline market essentially shutting down due to the coronavirus outbreak, Delta is in dire need of assistance. Delta’s stock suffered its greatest one-day decline in history, falling 26% on March 18, 2020, alone. This puts the stock more than 62% below its all-time high set in 2019. Delta and its domestic competitors have asked for more than $50 billion in government aid to survive the crisis.
American Airlines is in the same boat as its competitor, Delta Airlines. Depending on whether you are measuring by revenue, available seat miles, fleet size or 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 is parking hundreds of planes, slashing routes and has 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, 2020, the stock price fell 25% alone. American’s share price is now 80% off its 2018 high. The company joined Delta and the rest of America’s airlines to request at least $50 billion in financial support from the U.S. government. A leading aviation consultancy, the Centre for Aviation, put out a report suggesting that most airlines around the globe will face bankruptcy by May without support.
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, 2020, alone, a loss even greater than its competitors. The company’s share price now sits more than 77% below its all-time high from just 2018. In spite of its cost-reduction moves, at least $50 billion will be required to support the U.S. airline industry, according to United and its fellow carriers. Without government assistance or an unexpected rapid resolution to the coronavirus crisis, United could be one of the airlines landing in bankruptcy, according to the Centre for Aviation report.
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, is furloughing tens of thousands of workers during the crisis. On the customer service side, Marriott is allowing fee-free changes to all reservations through April 30, which will no doubt result in further cancellations.
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, 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 coronavirus has been nothing but an unmitigated disaster for the cruise lines, which are all currently shut down for the foreseeable future. The Diamond Princess has become the poster child for the coronavirus outbreak, with more than 700 passengers and crew members ultimately getting infected aboard the ship, which spent nearly one month quarantined outside Japan.
Why the Cruise Lines Are Too Big To Fail
The cruise industry has absolutely exploded in recent years, with revenue topping $37 million in 2017. Projections had this figure rising to $57 million by 2027, but 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 have fallen from $59.65 in mid-January to a very unlucky $7.77 as of March 18, 2020. Its industry colleagues have hardly fared better, with Royal Caribbean shares tumbling from $135.05 in mid-January to $22.33 on March 18, and Carnival following suit, crashing from $71.94 to $9.30. All of those declines exceed 80% and approach 90%. President Donald Trump’s administration has indicated that relief for the cruise lines may be coming, but no specifics have yet been outlined.
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. With social distancing becoming mandated in some areas, Simon Property Group was forced to shutter all of its malls nationwide for at least 12 days, beginning on March 18. With mall traffic already slowing before the health crisis, the mall shutdown could be devastating.
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 $44.92 from a 52-week high of $186.40. This amounts to a 75% 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. The way the coronavirus is spreading, it seems like Ford, GM and (now) Fiat Chrysler are in need of government assistance to avoid the same fate. All three automakers have closed all of their North American factories amidst the outbreak. The shutdowns will immediately stifle the cash flow of the automakers, who will have to pray for a short hiatus and then have the ability to ramp up production quickly on the other side to survive.
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 employs nearly 10 million American workers and 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 are at disastrous levels, with Ford at just $4.50 per share as of March 18, 2020.
MGM Resorts and the Casino Industry
In a previously unthinkable move, MGM Resorts announced that effective March 17, 2020, 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 indicated it would keep paying employees and extending health benefits for two weeks. Nevada’s governor further ordered that all “nonessential” businesses, including casinos, must remain closed for a full 30 days. The question on many minds was, how long could MGM and other hotel-casino operators continue to pay employees?
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 Nevada revenue in 2019 alone. Love it or hate it, Las Vegas is one of the crown jewels of the American economy, but the dominant casino operators are also trading as if they are heading for bankruptcy. MGM shares traded at just $7.14 on March 18, 2020, down nearly 80% from their 52-week high of $34.63. The casino industry is currently in the process of requesting federal money from the U.S. government to survive.
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 is back down to $6.60, a full 50% of its recent high. However, this is one time that “too big to fail” GE might not get a lifeline. Even though GE is a critical supplier to the aircraft industry, the Trump administration seems to be prioritizing a bailout for Boeing and other companies more than 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, no one has much need for oil currently. As if that wasn’t enough of a headwind, Chevron and the other “Big Oil” companies are caught in the middle of a price war between Saudi Arabia and Russia, further 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 has outlined $2 billion in cost-cutting moves to help keep it afloat, while 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 is going 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 60% below its recent high, but it has been through cycles such as this before.
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, the Trump administration is looking at plans to support American economic spending in the midst of layoffs, furloughs and unpaid leave. One idea rapidly gaining traction is the suggestion to send money directly to every American. Originally envisioned as a $1,000 check, the Trump administration seems to be leaning toward sending out two equal checks, on April 6 and May 18, with the amount based on income and family size. Whatever the final outcome, it looks like most Americans are about to get a quick cash infusion, courtesy of their own government.
Alternative Solution: Bridge Loans
Some experts are tossing out a suggestion to save the economy that doesn’t involve checks in the mail or corporate bailouts, per se: bridge loans. Rather than simply dropping helicopter cash on corporate USA or sending free money to Americans via the U.S. Mail, a bridge loan would require payback. The idea behind this concept is that bailouts inevitably result in favoritism, second-guessing, anger and mistrust. A bridge loan, on the other hand, would require accountability and payback to the U.S. government once the economy returned to normal.
Self-employed workers would get a piece of the pie as well, in the form of a zero-interest loan paid back within five years or so. No company, large or small, would be eligible for this type of bridge loan unless they pledged to continue to employ at least 90% of their current workforce at current wages. Other restrictions could apply, such as the inability to use the money for stock buybacks.
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 economies 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 the coronavirus crisis ends, you can be sure that some type of relief, in the form of government assistance, is on the way.
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About the Author
After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.