Boeing cash patch will be ripped off
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Robert Cyran
NEW YORK, Oct 15 (Reuters Breakingviews) -Boeing BA.N needs a lot of things, but what it needs most is cash. On Monday the $92 billion aviation giant said it would seek to fix that problem, registering a document with the U.S. Securities and Exchange Commission to raise up to $25 billion by selling debt and stock while also announcing a $10 billion credit agreement. With workers picketing and a strained balance sheet that can’t take much more production downtime, a fundraising will only patch over problems, and the cost will be high.
Boeing burned about $1 billion in the quarter that most recently ended in September. The company, with workers on strike, is trying to conserve cash by firing employees, suspending non-essential investment, and slowing orders from suppliers. Cash burn will probably increase as worker downtime continues. Emergency measures can’t continue forever, and S&P Global estimated earlier the strike would cost over $1 billion a month. Moreover, Boeing announced $5 billion of new pre-tax charges from problems with multiple projects, like a new delay on its 777X jet. The company needs to repay debt in April, and plus it requires cash for working capital.
Raising, say, $12 billion by selling stock, would provide a sufficient cushion for these costs, assuming the strike ends by January. Theoretically, existing investors should see minimal impact. If the company issued the stock at a 15% discount, and shareholders were willing to take up the shares in hope that their investment would increase in value, it would mean a roughly 2% knock to the stock price. On Tuesday morning, shares were roughly flat.
But the new funds are primarily offsetting Boeing’s most immediate problems rather than being used to create value or fix the longer term ones, such as capped production by regulators, aggrieved customers, loss of market share to rival Airbus AIR.PA, and the need to build a new jet. Assume investors believe that Boeing's value should be the same after the share sale as before, and it would mean a roughly 13% hit to the stock. If debt were issued, it would raise the chances ratings agencies would downgrade the company’s debt to junk, and equity valuation would depress further. The cash injection is just a patch that will soon be ripped off.
Follow @rob_cyran on X
CONTEXT NEWS
Boeing registered with the U.S. Securities and Exchange Commission on Oct. 12 to sell up to $25 billion in stock and debt, and also announced a $10 billion supplemental credit agreement with several banks. The aviation company said it had not drawn on the new facility or its existing credit revolver.
Boeing announced late on Oct. 11 it would cut 17,000 jobs, or about 10% of its workers. The jet maker also announced preliminary third quarter results, with a $9.97 loss per share. The company’s results were affected by a strike which started on Sept. 13. Over 30,000 employees walked off work.
Boeing also said it took $5 billion of pre-tax charges because of a new delay to its 777X program, the ending of the 767F freighter program and charges on four defense and space programs.
Boeing said it had $10.5 billion of cash and marketable securities at the end of the quarter.
Boeing's shares keep losing altitude https://reut.rs/3zQiuy6
Editing by Lauren Silva Laughlin and Pranav Kiran
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
