Boeing Seeks Massive Debt Raise Amid Mounting Costs and Union Strikes

The aerospace giant Boeing has announced a series of steps to bolster its financial position as it faces mounting costs and a prolonged strike by its largest union. The company is looking to raise up to $25 billion in debt or equity over the next three years, including a $10 billion line of credit, as it grapples with the impact of the strike and other financial pressures.

Navigating Turbulent Times: Boeing's Strategic Moves to Secure Its Future

Raising Funds to Weather the Storm

Boeing's decision to seek up to $25 billion in additional financing is a clear indication of the company's need to shore up its financial position. The move comes as the company faces a range of challenges, including the ongoing strike by its largest union, the International Association of Machinists and Aerospace Workers (IAM), which has brought much of the company's commercial airplane production to a virtual halt. The strike, which began a month ago, is estimated to be costing the company tens of millions of dollars per day, according to various industry analysts.To address these financial pressures, Boeing has announced that it has entered into a $10 billion credit agreement with a group of banks, including BofA Securities, Citibank, Goldman Sachs Lending Partners, and JPMorgan Chase. This line of credit, which the company has not yet drawn upon, is intended to provide additional liquidity and flexibility as it navigates the current challenges.

Restructuring and Job Cuts: Adapting to a Changing Landscape

In addition to the financing moves, Boeing has also revealed plans for a major restructuring that will include the elimination of 17,000 jobs, or approximately 10% of its global workforce. This decision reflects the company's need to streamline its operations and adapt to the changing market conditions.The restructuring comes on the heels of Boeing's announcement of around $5 billion in new costs, further underscoring the financial pressures the company is facing. These costs are likely related to the ongoing challenges surrounding the company's commercial aircraft programs, including the grounding of the 737 MAX and the impact of the COVID-19 pandemic on air travel demand.

Navigating Labor Tensions: The Impact of the IAM Strike

The strike by the IAM, which represents 33,000 Boeing employees, has been a significant factor in the company's current financial woes. The work stoppage has brought much of the company's commercial airplane production to a halt, further exacerbating the challenges it faces.Negotiations between Boeing and the union have been contentious, with both sides blaming the other for the breakdown in talks. The acting labor secretary, Julie Su, recently visited Seattle to meet with both Boeing and the union in an effort to facilitate a resolution to the dispute.The strike is estimated to be costing Boeing around $1.3 billion in capital per month, according to calculations by Sheila Kahyaoglu, an analyst at Jefferies, the investment bank. This significant financial burden, combined with the company's need for additional debt, has led some industry observers to suggest that Boeing may need to raise funds through a rights issue to improve its financial position.

Credit Rating Concerns and the Specter of Bankruptcy

The financial pressures facing Boeing have also raised concerns about the company's credit rating. Last week, S&P Global Ratings indicated that it was considering lowering Boeing's credit rating to junk status, a move that would significantly increase the company's borrowing costs.The potential credit rating downgrade has added to the sense of urgency surrounding Boeing's efforts to shore up its financial position. Tim Clark, the chief executive of Emirates, one of the world's largest airlines, has even suggested that Boeing could be forced to seek bankruptcy protection if it is unable to raise additional funds through a rights issue.As Boeing navigates these turbulent times, its ability to successfully execute its financing and restructuring plans will be crucial in determining the company's long-term viability and its ability to weather the current storm.