Boeing’s crisis is getting worse. It is now borrowing tens of billions of dollars

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CNN
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Cash-starved Boeing, reeling from massive financial losses due to a crippling strike 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 group of banks. It also separately announced plans to raise $25 billion through equity and debt sales.

The company’s debt has soared in the past six years as Boeing reported core operating losses of more than $33 billion. Its commercial aircraft production was almost halted due to the month-long strike involving 33,000 members of the International Association of Machinists.

Talks between Boeing and IAM collapsed last week with no new negotiations planned. On Friday, Boeing’s new CEO, Kelly Ortberg, announced plans to cut 10% of its 171,000 employees worldwide.

Boeing’s credit rating has fallen to the lowest level of investment grade — just above “junk bond” status — and major credit rating agencies have warned that Boeing is at risk of being downgraded to junk. This would 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, when a second fatal crash of the 737 MAX grounded that plane, the company’s best-selling plane, for 20 months. Airplanes.

Over the past six years, Boeing has had one problem after another, ranging from embarrassing to tragic. The crash of two 737 MAX planes killed 346 people, a tragedy in which the company agreed to plead guilty to deceiving the FAA during the aircraft’s certification process. A federal judge is weighing whether or not to accept a plea agreement that calls for fines of up to $487 million and requires him to work under the supervision of a court-appointed monitor. Lawyers for the families of the accident victims said before the court that the punishment was not strict enough.

A whistleblower testified before Congress that Boeing’s production process puts profits before safety and quality, violating the company’s own rules. That was driven home in January when a door seal blew off the side of an Alaska Airlines 737 Max, leaving a gaping hole in the plane shortly after takeoff. Although no crew member or passengers were seriously injured, the incident prompted several federal investigations, including one that found the plane left the Boeing factory without the four screws needed to keep the door plug in place.

The blow dealt by IAM is just 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 contract term, only to receive a nearly unanimous vote to reject the deal and go on strike. Union negotiators also rejected Boeing’s offer to increase the raises to 30% over the life of the deal.

For all its problems, Boeing is able to borrow money from a consortium of banks and is likely to be able to sell the equity and debt issues it needs on Wall Street because of the unique market location in which it operates. Boeing and its European competitor Airbus are the only two companies that manufacture the full-sized aircraft needed by the global aviation industry. Its status as part of the duopoly essentially ensures its survival.

Both have a backlog of orders extending years into the future. Airbus does not have the capacity to meet Boeing’s orders. If an airline canceled its orders for Boeing planes and placed orders for Airbus instead, it would have to wait up to five years for deliveries of those planes to begin. It would take years for another competitor to get its planes approved if it tried to enter the market. So, while Boeing has lost market share to Airbus in recent years, it’s not going anywhere.

But the grounding of production of its 737 Max planes, as well as its 767 and 777 freighters due to the strike, will create more cash flow problems for Boeing in the near term, because it makes most of its money from selling a plane at the time-of-delivery price. In addition, the company announced Friday that the 777X, the already long-delayed next-generation widebody airliner, will be delayed further due to problems discovered during test flights. Deliveries are now not scheduled to begin until 2026.

This story has been updated with additional reporting and context.