The $25B Boeing Problem.
Boeing’s $25B Equity Raise
The world’s largest aerospace company Boeing Co.is planning to raise $25 billion through a mixed offering of common stock. Boeing has obtained a credit agreement valued at $10 billion with a group of prime financial institutions, which includes Bank of America, Citibank, Goldman Sachs, and JPMorgan. The analysts from Bank of America indicate that Boeing is expected to raise between $10 billion and $15 billion in equity to preserve its investment-grade credit rating.
Boeing is currently confronted with $11.5 billion in debt that is set to mature by February 2026. Additionally, the company has pledged to issue $4.7 billion in shares to facilitate the acquisition of Spirit AeroSystems, which includes assuming its existing debt. This transaction to reacquire the parts supplier, which Boeing divested nearly two decades ago, is a strategic move aimed at enhancing safety within its production processes.
Boeing’s Labor Dispute
The current labor dispute has added more pressure to Boeing’s operations, particularly in areas that are not central to its business. Around 33,000 employees have been on strike since September 13, demanding a 40% pay increase spread over the next four years. Last week it announced plans to shed 17,000 jobs – about 10% of its global workforce – to cut costs. The Boeing is facing significant scrutiny, regarding the safety of its products, changes in leadership, and internal labor conflicts. It is estimated that the ongoing labor dispute is costing Boeing a whopping $1B a month.
Regulatory filing
A regulatory submission made by the company on Tuesday indicated its intention to generate funds through a combination of stock and debt offerings. This approach would afford Boeing the necessary flexibility to explore various options aimed at bolstering its balance sheet over the next three years.
Production and safety concerns
Boeing has experienced a challenging year, which commenced in January when a door panel detached mid-flight from one of its 737 Max 9 aircraft shortly after departing from Portland, Oregon. In response, the Federal Aviation Administration (FAA) imposed a limit on the production of the Max jets. In July, Boeing reached an agreement to plead guilty to a criminal fraud charge in the United States related to the crashes of two 737 Max jetliners in 2018 and 2019, resulting in the loss of 346 lives. As part of this agreement, the company agreed to pay a fine of nearly $250 million (£191 million).
Boeing order book and share price
Boeing’s earnings date is October 23, 2024. The company expects to report a third quarter revenue of $17.8 billion. Analysts’ forecasts price target for Boeing is $231.36, with a high estimate of $315.00 and a low estimate of $121.00 with a consensus rating of buy, based on 51 buy ratings, 21 hold ratings, and 3 sell ratings.
Boeing has an order book up to 2031 and by the end of last month, Boeing’s backlog (total unfilled orders before ASC 606 adjustment) was 6,165 aircraftof which 4,744, or 77 percent, were 737 NG/MAX narrowbody jets. Boeing’s all-time backlog record of 6,259 aircraft was, just like Airbus, set in March 2024.
Boeing CEO Message to Employees
Boeing’s President and CEO Kelly Ortberg, shared the following message to all staff members:
“Team, our business is in a difficult position, and it is hard to overstate the challenges we face together. Beyond navigating our current environment, restoring our company requires tough decisions and we will have to make structural changes to ensure we can stay competitive and deliver for our customers over the long term.
We need to be clear-eyed about the work we face and realistic about the time it will take to achieve key milestones on the path to recovery. We also need to focus our resources on performing and innovating in the areas that are core to who we are, rather than spreading ourselves across too many efforts that can often result in underperformance and underinvestment. Along with the above actions, we must also reset our workforce levels to align with our financial reality and to a more focused set of priorities. Over the coming months, we are planning to reduce the size of our total workforce by roughly 10 percent. These reductions will include executives, managers and employees. Next week, your leadership team will share more tailored information about what this means for your organization. Based on this decision, we will not proceed with the next cycle of furloughs.
As we move through this process, we will maintain our steadfast focus on safety, quality and delivering for our customers. We know these decisions will cause difficulty for you, your families and our team, and I sincerely wish we could avoid taking them. However, the state of our business and our future recovery require tough actions. We will be transparent with you regarding the timing and impact of these steps, and we will be professional and supportive to everyone along the way.
Thank you for all that you are doing through this very challenging time at Boeing. We will navigate through this moment. We will re-focus our company, and we will restore trust with all those who depend on us.”
Boeing’s CEO, Kelly Ortberg also discussed some tough choices and provided updates on various programs.
The Boeing Company
The Boeing is a global American corporation that designs, manufactures and sells a variety of aerospace products, including airplanes, rockets, satellites, rotorcraft and missiles. The corporation was founded on July 15, 1916, Seattle, Washington by timber merchant William E. Boeing. It operates in several divisions: Commercial Airplanes, Defense, Space and Security, Global Services, and Boeing Capital.
The Boeing’s reports for 2023 says that the corporation delivered 528 commercial airplanes and recorded 1,576 net orders, and generated $6.0 billion of operating cash flow and $4.4 billion of free cash flow (non-GAAP).
Related: October 2024 – Boeing’s European rival Airbus is axing up to 2,500 jobs at its space and defense unit.
