Market Analysis

Boeing plans to raise as much as $24.3 billion to strengthen its finances and prevent a downgrading

Amos Simanungkalit · 29 Oct5K Views

Boeing has launched a stock offering aimed at raising up to $24.3 billion to reinforce its finances amid significant financial pressures, including a six-week strike by factory workers, as it seeks to maintain its investment-grade credit rating.

The move comes as Boeing (NYSE) aims to bolster its strained finances, impacted by a work stoppage involving approximately 33,000 machinists who walked out in September, halting production on key models, including the high-demand 737 MAX.

In an announcement late Monday, Boeing revealed an increased offering of 112.5 million common shares, up from the previously stated 90 million, alongside $5 billion in mandatory convertible securities.

Ben Tsocanos, aerospace director at S&P Global Ratings, commented that the capital raise would be “favorable for credit quality” and would influence S&P's credit rating evaluation, noting the company’s ongoing challenges with negative free cash flow.

Boeing has never lost its investment-grade status, which it hopes to preserve with this move. The company has priced its stock at $143 per share, a 7.75% discount from its close on Friday before the announcement, with shares closing down 2.8% at $150.69 on Monday.

Excluding the option for underwriters to buy additional shares and securities, the offering is expected to generate around $21.1 billion in proceeds, according to Boeing.

This capital raise is vital for Boeing as ratings agencies have cautioned that a prolonged strike could result in a downgrade, which would likely increase its cost of capital. The planemaker’s financial strain is compounded by a regulatory production cap on its 737 MAX jets following a panel incident in January.

Boeing’s cash flow has been under pressure for three consecutive quarters, reporting a $6 billion loss in the third quarter and projecting cash burn to extend into the next year. An improved contract offer failed to satisfy striking workers, who demand a 40% wage increase and the reinstatement of a defined-benefit pension, which Boeing is reluctant to restore.

Analysts estimate the strike is costing Boeing over $1 billion monthly. In response, Boeing announced plans to reduce its workforce by 10%.

This month, Boeing secured a $10 billion credit line from banks and announced it would raise up to $25 billion through stock and debt offerings. S&P has warned of a possible downgrade if Boeing’s cash balance falls below $10 billion or if debt levels rise significantly.

As of September 30, Boeing held $10.5 billion in cash and marketable securities, with $11.5 billion in debt coming due by early 2026. Boeing also plans to issue $4.7 billion in shares to acquire Spirit AeroSystems (NYSE) and take on its debt.

Earlier this month, Reuters reported that Boeing was exploring ways to raise billions through stock sales and equity-like securities. Boeing confirmed Monday that it plans to use the proceeds for general corporate purposes, including potential debt repayments.