NEW YORK -- Cash-starved Boeing, contending with massive financial losses from a crippling strike and years of operational and safety problems, is turning to major banks and Wall Street to raise tens of billions of dollars in cash.
In a regulatory filing early Tuesday, the company announced plans to borrow US$10 billion from a consortium of banks. It also separately announced plans to raise US$25 billion by selling stock and debt. The US$10 billion borrowing plans would be included in the US$25 billion that Boeing filed to raise.
The company鈥檚 debt surged in the last six years as Boeing reported . Its commercial airplane production has ground to a near halt by a by 33,000 members of the International Association of Machinists.
Talks between Boeing and IAM last week with no new negotiations planned. On Friday, Boeing鈥檚 new CEO Kelly Ortberg announced of 171,000 workers.
Boeing鈥檚 credit rating has plunged to the lowest investment-grade level 鈥� just above 鈥渏unk bond鈥� status 鈥� and major credit rating agencies have warned Boeing is in danger of being downgraded to junk. That would raise its cost of borrowing. Boeing鈥檚 long-term debt has climbed to US$53 billion at the end of June from US$10.7 billion at the end of March 2019, when a second fatal crash of the 737 Max led to a 20-month grounding of that plane, the company鈥檚 best-selling aircraft.
Escalating crises
Over the last six years, Boeing has been buffeted by one problem after another, ranging from embarrassing to tragic. Two 737 Max crashes killed 346 people, a tragedy for which the company agreed to plead guilty to deceiving the Federal Aviation Administration during the certification process for the plane. A federal judge is considering whether or not to accept its that would include up to US$487 million in fines and require it to operate under the supervision of a court-appointed monitor. Attorneys for families of the crash victims argued in court that the penalty is not severe enough.
have testified before Congress that Boeing鈥檚 production process , violating the company鈥檚 own rules. That was driven home in January when a of a 737 Max flown by Alaska Airlines, leaving a gaping hole in the plane shortly after takeoff. While none of the crew members or passengers were severely injured, the incident prompted numerous federal investigations, including one that found the plane had left a Boeing factory needed to keep the door plug in place.
The strike by the IAM is just the latest blow. Last month, the company and union leadership agreed to a tentative deal that would have given union members a 25% raise over the four-year life of the contract, only to have the rank-and-file vote nearly unanimously to reject the deal and go on strike. Boeing鈥檚 offer to increase the raises to 30% over the life of the deal was also rejected by union negotiators.
Despite all of its problems, Boeing is able to borrow money from the consortium of banks and likely will be able to sell the stock and debt issues it needs on Wall Street because of the unique market position in which it operates. Boeing and European rival Airbus are essentially the only companies that make the full-size jets that the global airline industry needs. Its place as part of a duopoly essentially .
Both have backlogs of orders stretching for years into the future. And Airbus doesn鈥檛 have the capacity to take on Boeing鈥檚 orders. Should an airline cancel its orders for Boeing jets and place orders with Airbus instead, it would have to wait as many as five years for deliveries to start for those planes. And it would take years for another competitor to win approval for its own aircraft should it try to enter the market. So while Boeing has lost market share to Airbus in recent years, it isn鈥檛 going anywhere.
But the halt in production of its 737 Max, as well as its 767 and 777 freighters caused by the strike will create more cash flow problems for Boeing in the near-term, since it gets most of the money from the sale of a plane at the time of delivery. In addition, the company announced Friday that its already long-delayed 777X, the next generation of that widebody passenger jet, will be delayed further due to . It is now not due to start deliveries until 2026.
