Cash-strapped Boeing can’t afford credit agencies to downgrade its debt to junk. As factory workers continue their crippling strike, which has now lasted over a month, the company is prepared to raise $35 billion in funds to ensure it can pay its bills. In a pair of Tuesday morning filings with the Securities and Exchange Commission, the company said it could issue $25 billion in shares or debt over the next three years and also revealed a new $10 billion credit agreement with the likes of Bank of America, Citibank, Goldman Sachs, and JPMorgan Chase.
Issuing new stock would be a blow to the company’s long-suffering shareholders, diluting the value of their holdings. A credit downgrade would likely be much worse for all parties, however, as it would significantly raise borrowing costs when the company is desperately trying to get on the road to recovery under new CEO Kelly Ortberg.
Bank of America senior analyst Ronald Epstein expects the company will raise $10 to $12 billion by the end of the year, which would cover the company’s estimated cash flow burn of $3 to $5 billion in the second half of 2024. The company has $11.5 billion of debt maturing through Feb. 1, 2026, per Reuters.
“These are two prudent steps to support the company’s access to liquidity,” Boeing said in a statement.
Investors appeared to approve the move, with shares rising over 1% Tuesday morning. The stock is down 40% in 2024 and 56% over the past five years.
On Sunday, Boeing CFO Brian West said one of the company’s three immediate priorities included ensuring its credit rating remains investment-grade.
“We’re constantly evaluating our capital structure and liquidity levels to ensure that we could satisfy our debt maturities over the next 18 months,” West said at a Morgan Stanleyconference in Laguna Beach, Calif.
Strike continues to cripple Boeing
Much of Wall Street cheered Boeing’s hire of Ortberg, a respected industry veteran, as the company’s first step to getting back on track. Barely a month into his tenure, however, over 32,000 union members overwhelmingly rejected a new pay deal and walked off the job. Negotiations have deteriorated in recent weeks, compelling U.S. Acting Labor Secretary Julie Su to meet with Boeing and union representatives in Seattle on Monday to try to spark progress.
The strike has all but ground Boeing’s production of commercial jets to a halt, and Epstein estimates the company is losing $50 million a day. Last week, Ortberg told employees the company will soon lay off around 17,000 employees, or 10% of its workforce.
“For every problem that’s come to a head, then severed, more problems sprout up,” Epstein said in a recent note. “We see this in the union strike, production ramp cap, systemic quality control issues, ongoing cash burn, and the need for another potential capital raise. The issues all feed into each other creating a continuous doom loop while compounding the negative impacts.”
Until Boeing persuades its workers to return to the factory, Tuesday’s filings are mere Band-Aids for the aerospace giant’s woes.