Boeing Considers $10 Billion Stock Offering Amidst Strikes

Boeing shares have taken a hit in premarket trading in New York following a Bloomberg report that the beleaguered aerospace giant may need to raise at least $10 billion via a new stock offering. This comes as the company grapples with a multi-week strike by its union and dwindling cash reserves.

Exploring Options for Cash Infusion

Sources close to the situation reveal that Boeing executives are consulting with advisors to investigate various strategies for raising cash. The company's financial health is deteriorating due to the ongoing strike involving 33,000 workers, which is approaching its third week. According to these insiders, who requested anonymity due to the sensitive nature of the information, raising equity is unlikely to occur for at least a month. This is contingent on Boeing being able to resolve the strike, as the company wants to fully understand the financial implications of the walkout by its workforce.

Uncertainty Over Timing and Amount

No final decisions have been made regarding the timing and amount of the potential equity raise. Indeed, Boeing may ultimately decide against the move, according to the same sources.

Financial Impact of Strikes

Estimates from JPMorgan analysts suggest that Boeing stands to lose $1.5 billion each month if workers continue to stay away from the production lines of commercial jets and maintain their picket lines. Three major rating agencies have cautioned that the strikes could result in Boeing's investment-grade credit rating being downgraded to speculative territory, or 'junk.'

Liquidity Squeeze

Boeing is currently experiencing a liquidity squeeze, having burned through an astonishing $8.25 billion in free cash during the first half of the year. Some Wall Street analysts are predicting a $3.36 billion cash outflow in the third quarter. In the market, Boeing's shares have dropped by around 1% due to fears of dilution. Over the course of the year, shares have plummeted nearly 42%.

Preserving Investment Grade Rating

Last month, Boeing's Chief Financial Officer, Brian West, assured analysts at the Morgan Stanley conference that the company "will take any necessary actions" to maintain its investment grade rating and strengthen its balance sheet. West expressed comfort with the idea of supplementing Boeing's liquidity position to support these two objectives when asked about potential future capital raises.

Analysts' Predictions

Recently, Goldman analysts Noah Poponak and Anthony Valentini advised clients that Boeing faces a balance sheet question and has suggested that raising capital is a possibility given the importance of the credit rating. They predict that Boeing will raise $12 billion of equity before the end of the year, which would match the total maturities due in 2025 and 2026, and maintain a cash balance of over $10 billion in the near-to-medium-term as they ramp up commercial deliveries and work to resolve defense profitability.

Uncertain Timing

The equity raise will only occur after Boeing has finalized a labor contract offer with the union, but the timing remains uncertain.

Bottom Line

Boeing's current predicament is a stark reminder of the delicate balance between labor relations and corporate financial health. The aerospace giant's consideration of a $10 billion stock offering to bolster its liquidity amidst ongoing strikes raises questions about the future of the company and its relationship with its workforce. What are your thoughts on this situation? Do you think Boeing's strategy will prove successful, or could this be a turning point for the company? Share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, available every day at 6pm.