The aerospace giant seeks $25 billion in capital and secures a $10 billion credit facility to strengthen its balance sheet amid production disruptions.
Boeing is taking decisive action to bolster its financial position, announcing plans to raise up to $35 billion through a combination of new capital and a significant credit facility. This move comes in response to a crippling strike by its largest labour union, which has halted production lines for critical aircraft models, including the 737 Max, 767, and 777.
In a recent filing, the aerospace giant indicated its intention to secure up to $25 billion in debt or equity over the next three years. This strategic decision is aimed at providing Boeing with the flexibility to explore a variety of capital options as it navigates through a particularly challenging period. Additionally, the company has entered into a $10 billion supplemental credit agreement with a consortium of lenders, offering crucial short-term liquidity.
Boeing has not disclosed specific timelines for the capital-raising efforts, nor has it drawn on the newly established credit facility. The company described these steps as prudent measures to enhance access to liquidity, particularly as it faces ongoing operational challenges.
Credit rating agency S&P Global Ratings has recently issued a warning regarding a potential downgrade of Boeing’s bonds to junk status. Analysts have speculated that the company would need to raise at least $10 billion in new equity to sustain its investment-grade credit rating. “They have bought themselves some time,” stated Ben Tsocanos, aerospace director at S&P. However, he added, “Ultimately, the company has to resolve the strike and really be on a path to building planes again in order to maintain the rating.”
Market reactions to Boeing’s announcement have been mixed. The company’s shares rose by 2.2% on Tuesday following initial declines, indicating a degree of investor confidence in the management’s strategy. Some analysts, however, voiced concerns about the vague nature of the capital-raising plans. Nick Cunningham from Agency Partners suggested that the breadth of the filing and the necessity for temporary financing might indicate difficulties in attracting investors or lenders.
The ongoing strike, initiated on September 13 by 33,000 members of the International Association of Machinists and Aerospace Workers, has significantly impacted Boeing’s production capabilities. The industrial action has led to a complete halt in manufacturing at factories in Washington state, raising concerns about potential credit downgrades if the situation persists.
One bondholder expressed cautious optimism regarding Boeing’s fundraising strategy, viewing it as a bridge facility to instil market confidence during negotiations with the union. Conversely, another bondholder noted that raising closer to $15 billion would mitigate the risk of requiring further shareholder support if the initial issuance proved inadequate.
The situation has also raised questions about Boeing’s negotiating position with the union. “From a position of negotiating strength, I’m not sure you necessarily need to [issue] the equity before the strike is settled,” remarked the bondholder. The prolonged nature of the strike has introduced uncertainty regarding the duration of disruptions in Boeing’s supply chain, complicating the company’s financial planning.
As Boeing seeks to navigate these turbulent waters, its actions reflect a critical moment for the company as it strives to regain operational stability and confidence in its financial health.
