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Boeing has agreed to raise up to $25 billion in debt or equity over three years and has signed a $10 billion deal with lenders that it believes will provide liquidity amid the strike.
Airplane maker Boeing plans to raise up to $25 billion in debt or equity from investors over the next three years, the Financial Times reports. The company has also signed a $10 billion "additional credit facility" with a consortium of lenders.
Boeing said the move would give the company “flexibility to pursue various capital options as needed” over a three-year period. “These are two prudent actions designed to support the company’s access to liquidity,” the company said, noting that Boeing is operating in a “challenging environment.”
Last September, the International Association of Aerospace Mechanics (IAM, the union representing workers building Boeing's 737 MAX and other aircraft) launched its first major strike since 2008. They are demanding a 40% wage increase and the restoration of performance bonuses.
The company offered a 25% pay raise, but the offer was rejected. Boeing stopped hiring and laid off workers to cut costs because of the strike. During the strike, workers are supposed to get one week off every four weeks. Boeing later agreed to restore bonuses and increase pension benefits if workers accepted the offer within a few days, but the union refused to vote.
Against this backdrop, Boeing announced plans to lay off about 17,000 employees (about 10% of its total workforce). The company also announced that it was delaying deliveries of the 777X aircraft until 2026.
One bondholder told the FT that the decision to raise capital through debt and equity was a "sensible management strategy". "Basically they are looking for a middle ground to give the market confidence that there will be no problems in the near future". "The problems arise during negotiations with the union."
Last week, credit rating agency S&P Global Ratings warned that it was considering downgrading Boeing's bonds to junk status, a move similar to Moody's earlier announcement. Rating agency Fitch noted high risks.
S&P Aerospace CEO Ben Tsokonos said Boeing's move "buys time, but ultimately the company must end the strike and resume production." Fitch said Boeing's move "will enhance the company's financial flexibility and reduce near-term liquidity pressures amid the prolonged strike and ongoing operational challenges."
The FT noted that Boeing shares rose less than 2% to $151.92 in New York afternoon trading after the capital-raising strategy was announced. The market initially fell after the market opened.
Boeing previously reported that it had $10.5 billion in cash and marketable securities at the end of September, close to the minimum amount needed to operate. At the end of the second quarter, Boeing's consolidated debt was about $58 billion.