In Effort to Boost Finances, Boeing Seeks $24.3 Billion to Avert Rating Downgrade

Boeing, the planemaker in a desperate battle to stave off a downgrade over its shattered finances, has launched a stock offering that could rise to $24.3 billion. This move is a crucial step in the company’s efforts to strengthen its battered balance sheet. The company has announced it will sell 90 million common shares worth about $14 billion at the current share price and $5 billion in mandatory convertible preferred stock that will qualify as equity for credit rating purposes.

The move will give Boeing the cash it needs to meet debt maturities and address upcoming costs. Boeing’s finances have been squeezed since a door panel blowout on a 737 MAX jet in mid-air last January forced a regulator-imposed cap on the model’s production. That, combined with a more than six-week strike by factory workers, has slashed production and left the company burning through cash.

After reviewing the company for a possible downgrade, Moody’s warned it would struggle to deliver enough new airplanes to offset recurring losses over the next few years. The ratings agency’s concerns stem from the company’s forecast of only $1 billion in annual free cash flow and a decline in its held cash and short-term investments to under $10 billion by 2024.

Investors are deeply concerned about the potential consequences of Moody’s downgrade for Boeing. If the company is lowered to junk status, it will face significant challenges in accessing stable institutional investor money to fund its operations. The plan to raise equity, while a step in the right direction, is unlikely to fully address the company’s needs over the next several months.

Boeing’s finances have worsened since roughly 33,000 of its workers represented by the machinists union walked off their jobs in September, halting production of models including its cash-cow 737 MAX aircraft. The strike, which lasted for more than six weeks, has significantly slashed production and left the planemaker burning through cash, a situation expected to intensify over the next year as it faces more uncertainty from the FAA, regulators, and airlines.

Boeing has not been idle in the face of its challenges. The company has intensified its efforts to boost production, although it will take time for these initiatives to yield results. It has also begun limiting deliveries of the MAX, a crucial source of revenue, in a strategic move to manage its resources.

Boeing is still seeking a contract with the workers to provide it with the revenue and profit it needs to compensate for these losses. The company is preparing to offer union leaders a deal with a 25% wage hike and a restoration of a defined-benefit pension system that the workers rejected.

The company hopes that the new equity offering will help persuade union leaders to accept a better deal and that the negotiations can end soon. However, if the work stoppage continues, Boeing could face more pressure from investors to raise even more capital. The spread, or premium over Treasuries, on the company’s bonds narrowed slightly on Monday.