Boeing to raise funds to boost finances, stave off downgrade

Bengaluru — Boeing on Monday launched a stock offering that could raise up to $19bn as the plane maker looks to strengthen its finances squeezed by a more than month-long strike by its workers and preserve its investment grade credit rating.

The company is offering 90-million in common stock and $5bn in mandatory convertible securities.

Based on Friday’s closing price, Boeing can raise $13.95bn from the common stock offering, though such issues are typically priced at a discount to ensure enough demand.

The company’s shares were last down marginally in volatile premarket trading on Monday.

The move will boost Boeing’s battered finances, which have worsened since about 33,000 of its workers represented by the machinists union walked off their jobs in September, halting production of models including its cash-cow 737 MAX aircraft.

The plane maker was already reeling under a regulator-imposed cap on production of its MAX jets after a January midair panel blowout.

The combination of labour woes and its production problems have caused it to burn cash in the last three quarters. Last week, the company reported a $6bn third-quarter loss and said it would burn cash next year.

The same day, striking workers rebuffed an improved contract as it fell short of their demands of a 40% wage hike and restoration of a defined-benefit pension plan, which Boeing is unlikely to reinstate.

A capital raise is essentially for the company to preserve its investment-grade credit rating. Ratings agencies have warned that a prolonged strike may lead to a downgrade in Boeing’s credit rating, likely pushing up the cost of capital.

The strike is costing the company more than $1bn a month, according to one estimate that was released before Boeing announced it would cut 10% of its workforce.

Earlier this month, Boeing entered into a $10bn credit agreement with banks and announced plans to raise up to $25bn through stock and debt offerings.

S&P Global has warned of a ratings downgrade if Boeing slipped below a target cash balance of $10bn or if the company had to increase leverage to meet debt maturities.

Boeing, which has never fallen below the investment-grade rating, had cash and marketable securities of $10.50bn on September 30.

It has $11.5bn of debt maturing through February 1 2026 and is committed to issuing $4.7bn of its shares to acquire Spirit AeroSystems and assume its debt.

Reuters had reported earlier this month Boeing was examining options to raise billions of dollars through a sale of stock and equity-like securities.

Boeing said on Monday it intends to use proceeds for general corporate purposes, which may include paying off debt.

Reuters