By David Carnevali, Julie Johnsson, Bailey Lipschultz and Aaron Kirchfeld / Bloomberg
Boeing is considering raising at least $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 spokesperson for Boeing 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.
Boeing is under pressure to shore up its finances and hold onto its investment-grade credit rating. The company is one step away from dropping into speculative territory, which would further drive up the cost to service its $58 billion debt load. The situation has been exacerbated by the strike now in its third week that has shut down output of Boeing’s single-aisle airliner, as each day of stoppage further dents reserves.
The U.S. 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 Co.’s $12.3 billion sale in June.
The stock fell as much as 3.6% in pre-market trading as investors weighed the dilutive effect of a potential share sale. The planemaker has lost 42% in value this year, putting it on course for its worst annual return since the financial crisis in 2008. That leaves Boeing with a market value of about $93.6 billion.
Suspended talks
Boeing faces a liquidity squeeze after burning through $8.25 billion in free cash during the first half. The 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. 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.
Analysts expect Boeing to suffer a $3.36 billion cash outflow in the third quarter, according to data compiled by Bloomberg. The strike stands to cost the company about $1.5 billion for each month that workers stay off the job, according to estimates by JPMorgan Chase & Co.
The outflows risk lowering Boeing’s cash balance to the point where the three major ratings agencies would be compelled to act. Fitch Ratings has warned an extended strike could have a “meaningful operational and financial impact, increasing the risk of a downgrade.”
‘Perfectly comfortable’
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. Boeing has already initiated a savings plan that includes furloughs for workers, a hiring freeze as well as a pay cut for executives.
“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.
While Boeing is currently cash-strapped, the company is pointing to an order backlog of 5,490 aircraft, representing about half a trillion dollars worth of revenue. The 737 Max is largely sold out until the end of the decade, and European arch-rival Airbus SE is also struggling to ramp up production and has been unable to meaningfully capitalize on Boeing’s woes.
Boeing 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 $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 Inc., the troubled supplier at the heart of some of its current manufacturing woes. While Boeing plans to pay for the $4.7 billion transaction in stock, the reintegration of its most important supplier will require additional investments to turn the business around.
With assistance from Siddharth Philip, Ryan Gould and Dinesh Nair.
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