Boeing considers issuing $10 billion in new shares as strike lingers

By Ciara Linnane and Claudia Assis

For investors, it's a question of when, not if, analyst says; Boeing bondholders are upbeat.

Boeing Co.'s stock edged higher Tuesday after news the aerospace and defense giant is considering raising at least $10 billion by issuing new shares as it works to bolster cash reserves depleted by a strike.

Bloomberg reported Tuesday that Boeing (BA) is working with advisers to explore its options, citing people familiar with the talks. Investors widely expect an equity raising by Boeing.

The share issue is unlikely to happen for at least a month, and assumes the company can end the strike by its machinists, a 33,000-strong group that has downed tools over pay. Boeing wants a full grasp of the financial fallout from the strike, the people told Bloomberg. The company may ultimately decide not to issue stock, said the report.

A Boeing spokesperson said the company would have no comment, and referred MarketWatch to comments made by Chief Financial Officer Brian West last month about how Boeing would manage its liquidity.

West said then that Boeing wanted to prioritize its investment-grade credit rating, now in peril, and to allow the factory and the supply chain to stabilize. The company would take "any necessary actions" to make sure it accomplishes those two goals, the executive said.

"Any equity offering would be in line with investor expectations which has not been a question of if, but how much and when," Jefferies analyst Sheila Kahyaoglu said in a note Tuesday.

The equity raise would be based on near-term cash needs, and needed to fund 2025 debt maturities, limiting near-term risk, the analyst said.

The strike comes at a challenging time for Boeing, which is trying to turn itself around following a series of production missteps. Boeing has introduced furloughs of non-unionized workers to preserve cash as the strike continues.

Management is working to hold on to the company's investment-grade credit rating, which is at risk of being cut to junk by all three ratings agencies. Moody's Ratings and Fitch Ratings both said the strike poses a risk to the company's credit, particularly if it stretches on for a long period.

S&P Global Ratings said it didn't expect the strike to impact its rating, at least for now.

All three rating agencies have Boeing's credit at the lowest rung of investment grade. The company has $45 billion of debt, which would be more expensive to service if it were downgraded to junk. It would also shut the bonds out from a much bigger pool of investors, including pension funds, that can only own investment-grade debt.

Last week, the company's outstanding bonds were holding up as the stock fell, although analysts said that had more to do with the current strength of credit markets following the recent 50-basis-point interest-rate cut by the Federal Reserve than with confidence in Boeing.

The company has burned through $8.25 billion in free cash in the first half and Bloomberg data suggests it will see another $3.36 billion cash outflow in the third quarter.

See now: Why Boeing's bonds are a hot item right now, unlike its stock

On Tuesday, bondholders seemed to cheer the bond-friendly news, sending spreads tighter on the day, as the following chart from data solutions provider BondCliQ Media Services shows.

The stock has fallen 41% in the year to date, while the S&P 500 has gained 20%.

-Ciara Linnane -Claudia Assis

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10-01-24 1132ET

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