Boeing’s (BA) plan to survive the strike is taking shape, with Reuters reporting on plans to raise $15 billion through the sale of shares and convertible bonds. The financial maneuver comes as the aerospace giant struggles with a months-long labor dispute and its investment-grade credit rating is at stake.
The proposed fundraising reportedly includes a $10 billion equity sale, combined with $5 billion in convertible notes, which can be converted into stock if necessary. Boeing had previously indicated that in addition to a $10 billion loan, it could also raise another $25 billion.
Before the machinists’ strike began last month, Boeing was already burning tons of money trying to fix quality control problems exposed when a door plug fell off a 737 Max plane during flight in January. The strike, which is draining the company’s coffers by tens of millions of dollars a day, is further hampering efforts to capture the revenue it has been able to raise amid a Federal Aviation Administration-imposed production slowdown.
A complicating factor in Boeing’s recovery plan is that its credit rating hovers just above junk bond status, which would make it more difficult to raise further capital.
“We believe the company remains exposed to higher-than-expected cash expenditures and adjusted debt over the next two years, which could further delay the expected recovery of its credit measure to levels we view as consistent with the rating,” ratings agency S&P said. (SPGI) said earlier this month about Boeing.
Structuring the new loans will be a very delicate maneuver for Boeing, which may face credit scrutiny due to uncertainty over the labor situation. Any further pressure on the balance sheet could push the company to a breaking point. In assessing the initial announcement of the new cash injection plans, ratings agency Fitch was very cautiously optimistic.
“Management’s willingness and ability to access sources of capital other than debt in the coming months will help alleviate downgrade risks,” the report said.
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