A Boeing 737 MAX 8 airplane, built for India-based Jet Airways, takes off on a test flight at Boeing Field in Seattle April 10. (AP Photo/Ted S. Warren, File)

A Boeing 737 MAX 8 airplane, built for India-based Jet Airways, takes off on a test flight at Boeing Field in Seattle April 10. (AP Photo/Ted S. Warren, File)

Just in case: Boeing secures $1.5 billion credit line

With 737 MAX deliveries on hold, the company wants to ensure it has enough cash.

By Douglas MacMillan / The Washington Post

Boeing has secured a $1.5 billion line of additional credit, a sign that the plane-maker is taking more caution with finances as sales of the 737 MAX remain on hold.

The credit facility is being arranged by banks including Citibank, JPMorgan Chase, Merrill Lynch and Pierce, Fenner & Smith, according to a regulatory filing Monday. It’s scheduled to terminate on Oct. 30, with an option for Boeing to extend it for an additional year. The credit line expands on Boeing’s existing, unused line of $5.1 billion in credit.

Boeing’s business requires a large amount of cash to produce new planes and invest in operations, and its ability to generate cash has been stifled by the widespread grounding of the 737 MAX. The company continues to produce 42 new 737 jets a month, but it cannot sell any 737 MAX planes to customers until global regulators are satisfied that Boeing has improved their safety.

Companies secure access to credit as a precaution during periods when their access to cash is uncertain.

In a statement, Boeing spokesman Gordon Johndroe said the added line of credit “provides adequate financial flexibility to address financial market uncertainty, emerging business needs, as well as take advantage of potential strategic business opportunities should they arise.”

At the end of March, Boeing had a little more than $6.8 billion in cash and cash equivalents, about 10% less than it did the year prior.

Last week, Boeing said it paused its plan to buy back $18 billion in stock from investors, a move that freed up more cash to use in the business. Boeing also took the unusual step of withdrawing its guidance, or estimate of future financial results, because it doesn’t know how many planes it could sell this year.

Boeing’s free cash flow — a closely watched measure of how much cash the company generates after taking out the cost of capital expenditures, such as factory improvements — may fall precipitously as Boeing continues building planes that sit idle in production facilities in Renton, Washington, and elsewhere.

Cai von Rumohr, a senior analyst at Cowen, estimated earlier this month that Boeing could report zero free cash flow during the first quarter and negative free cash flow in the second quarter, before rebounding later in the year. He predicts about that the company will have $12 billion in free cash flow for the whole year — well below his earlier estimate of $16 billion. Boeing had said in January that it expects free cash flow this year of between $17 billion and $17.5 billion.

Boeing has not given an estimate of how much the 737 MAX grounding will cost. Airlines are incurring costs as they cancel hundreds of flights a day, which Boeing is likely to repay in the form of future discounts on new planes, analysts said. American Airlines said it expects to lose out on $350 million in 2019, assuming that the grounding order is lifted by Aug. 19.

In the first quarter of the year, Boeing recorded a $1 billion accounting charge due to the costs it has incurred to change production rates.

More in Herald Business Journal

Frontier Communications seeks March bankruptcy, sources say

The company reportedly has $356 million of debt payments coming due March 15.

Another unsatisfied Boeing customer: the U.S. Air Force

The service has reminded the new CEO that it’s not happy with Boeing’s aerial-refueling tanker program.

Washington dairies struggle after trade wars and low prices

People are drinking less milk, but “It’s very hard to turn a cow off,” jokes one Stanwood dairyman.

SpaceX launches, destroys rocket in astronaut escape test

Nine-minute flight ended with the Dragon crew capsule parachuting safely into the Atlantic.

What you need to know before 2020 Census starts in Alaska

The Census Bureau starts the head count in The Last Frontier state by going door-to-door in January.

Boeing has a newly discovered software problem on the 737 Max

The issue concerns a program that verifies whether monitors tracking key systems are working properly.

Make this the year you stop wasting food (and money)

A person could save about $370 annually on average by wasting less food.

Changing Boeing’s corporate culture won’t be easy

Systemic errors can sometimes be very difficult to track down and eradicate.

Southwest joins rivals in again delaying Boeing jet’s return

The airline will drop about 330 flights each weekday from its normal 4,000 daily flights.

Most Read