Boeing weighs raising at least US$10 billion selling stock
Boeing seeks to replenish cash reserves depleted further by an ongoing strike
BOEING is considering raising at least US$10 billion by selling new stock, as the planemaker seeks to replenish cash reserves depleted further by an ongoing strike, according to people familiar with the discussions.
The company is working with advisers to explore its options, said the people, asking not to be identified discussing confidential matters. Raising equity isn’t likely to happen for at least a month, assuming the planemaker can resolve the strike, because Boeing wants a firm grasp of the financial toll from the walkout by 33,000 workers, the people said.
A spokesman for the company declined to comment. No final decision on timing and the amount has been made, and Boeing could end up deciding against the move, the people said.
The US planemaker has seen its financial reserves dwindle in the wake of a near-catastrophic accident in January that forced Boeing to slow production of its cash-cow 737 Max airliner. Should Boeing proceed, a sale of that magnitude would stand to be the biggest by a public company since Saudi Arabian Oil’s US$12.3 billion sale in June.
The strained situation has been exacerbated by the strike now in its third week that has shut down output of Boeing’s single-aisle airliner, putting the company’s credit rating at risk as each day of work stoppage further dents reserves.
Workers have turned down two offers from the company for higher pay, and the two sides have engaged a mediator to help overcome the impasse.
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Boeing faces a liquidity squeeze after burning through US$8.25 billion in free cash during the first half. The US planemaker slowed work on its cash-cow 737 Max and other jets to address quality lapses brought to light by the accident on an aircraft on Jan 5.
Analysts expect Boeing to suffer a US$3.36 billion cash outflow in the third quarter, according to data compiled by Bloomberg. The strike stands to cost the company about US$1.5 billion for each month that workers stay off the job, according to estimates by JPMorgan Chase.
The outflows risk lowering Boeing’s cash balance to the point where the three major ratings agencies would be compelled to act. Boeing’s credit rating is one step above speculative grade, and Fitch Ratings has warned that an extended strike could have a “meaningful operational and financial impact, increasing the risk of a downgrade.”
Shares of the planemaker have lost 42 per cent in value this year. That puts Boeing on course for its worst annual return since the financial crisis in 2008.
Chief financial officer Brian West told analysts at a Morgan Stanley conference last month that Boeing “will take any necessary actions” to preserve its investment grade rating and repair a balance sheet burdened by its US$58 billion debt load.
“We are perfectly comfortable to supplement our liquidity position to support those two objectives,” West said when asked if the company might need to raise debt or equity.
Boeing has already initiated a savings plan that includes furloughs for workers, a hiring freeze as well as a pay cut for executives.
The planemaker has a history of tapping markets shortly after it releases quarterly earnings, and the next such report is slated for late October. The company most recently issued US$10 billion at the end of April, about a week after it published its first-quarter results.
The company has also said it wants to buy back Spirit AeroSystems, the troubled supplier at the heart of some of its current manufacturing woes. While Boeing plans to pay for the US$4.7 billion transaction in stock, the reintegration of its most important supplier will require additional investments to turn the business around. BLOOMBERG
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