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CNN
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Cash-strapped Boeing, struggling with massive financial losses from crippling strikes and years of operational and safety problems, is turning to big 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 $10 billion from a consortium of banks. It also separately announced plans to raise $25 billion through the sale of equity and debt.
The company’s debt has ballooned over the past six years as Boeing reported major operating losses of more than $33 billion. A month-long strike by 33,000 members of the International Union of Mechanical Engineers has virtually halted its commercial aircraft production.
Talks between Boeing and IAM ended last week with no new talks scheduled. On Friday, Boeing’s new CEO Kelly Ortberg announced plans to cut 10% of its global workforce of 171,000 employees.
Boeing’s credit rating has fallen to the lowest investment grade level — just above “junk bond” status — and major credit rating agencies have warned that Boeing is at risk of being downgraded to junk. That will raise the cost of borrowing. Boeing’s long-term debt rose to $53 billion at the end of June, from $10.7 billion at the end of March 2019, after the second fatal crash of the 737 Max led to the grounding of the plane for 20 months, the company’s best seller. Airplane.
Over the past six years, Boeing has faced one problem after another, ranging from the embarrassing to the tragic. After two 737 Max crashes killed 346 people, the company agreed to plead guilty to defrauding the Federal Aviation Administration during the certification process for the plane. A federal judge is considering whether or not to accept his plea deal, which would see him pay up to $487 million in fines and operate under the supervision of a court-appointed supervisor. Lawyers for the families of the accident victims argued in court that the fine was insufficient.
Whistleblowers have testified before Congress that Boeing’s manufacturing process violated the company’s own rules and prioritized profit over safety and quality. A 737 Max operated by Alaska Airlines suffered a hole in the side of a 737 Max shortly after takeoff when a door plug exploded. Although none of the crew or passengers were seriously injured, the incident sparked several federal investigations, including one that found the plane had left a Boeing factory without the four bolts needed to insert the door.
The IAM’s strike is the latest blow. Last month, the company and union leadership agreed to a tentative deal that would give union members a 25% raise over the four-year life of the deal, requiring a near-unanimous vote by the rank and file to reject the deal. Go on strike. Boeing’s offer to increase raises by 30% over the life of the contract was also rejected by union negotiators.
Despite all its problems, Boeing could borrow from a consortium of banks and sell equity and debt issues as needed on Wall Street because of the unique market position in which it operated. Boeing and European rival Airbus are the only manufacturers of the full range of jets needed by the global aviation industry. Its location as part of a duopoly ensures its survival.
Both have backlogs of orders for years into the future. And Airbus doesn’t have the capacity to take orders from Boeing. If an airline cancels orders for Boeing jets and places an order with Airbus instead, it may have to wait up to five years before deliveries begin. If another competitor tries to enter the market, it will take years to get approval for its own aircraft. While Boeing has lost market share to Airbus in recent years, it’s not going anywhere.
But the strike halted production of its 737 Max and its 767 and 777 freighters, creating more cash flow problems for Boeing as it gets more cash from selling the aircraft. Delivery time. In addition, the company announced on Friday that its already long-delayed 777X, the next generation of that widebody passenger jet, will be further delayed due to problems discovered during test flights. It now doesn’t start deliveries until 2026.
This story has been updated with additional reporting and context.
