Boeing Exploring Fundraising Options

By Shankar Ramakrishnan, Allison Lampert, Echo Wang, and Mike Stone

NEW YORK (Reuters) – Boeing (NYSE:BA) is examining options to raise billions of dollars through a sale of stock and equity-like securities, as it tries to avoid dropping into junk territory on its credit ratings.

In recent weeks, Boeing has received pitches from investment banks including Goldman Sachs, JPMorgan, Bank of America, and Citigroup, suggesting various fundraising options. These options include selling common stock as well as securities such as mandatory convertible bonds and preferred equity. One source indicated that they suggested Boeing should aim to raise around $10 billion.

Such hybrid bonds can be treated as equity capital by rating agencies, meaning issuing them would not increase debt to the same extent as selling traditional bonds, while potentially being more favorable for existing shareholders.

Banks have also been building shadow books, gauging interest from investors for these securities in case Boeing decides to proceed. Some investors have reached out to banks expressing their interest in purchasing Boeing’s preferred securities if issued.

Both Boeing and the investment banks declined to comment. The sources, who requested anonymity due to the private nature of these discussions, noted that Boeing has not yet decided on any of these options and it is unclear when a decision may be made.

Last month, Boeing CFO Brian West mentioned at a Morgan Stanley conference that the company was "constantly evaluating our capital structure and liquidity levels to ensure that we could satisfy our debt maturities over the next 18 months while maintaining confidence in our investment-grade credit rating." Maintaining an investment-grade rating is crucial for Boeing, which has never fallen below that threshold. Ratings influence not only capital costs but also access to institutional investor funds.

Boeing's financial situation has worsened since a January 5 incident where a door panel detached from a 737 MAX mid-flight, leading to reduced production of the aircraft. Furthermore, a labor strike in the previous month impacted production and caused the company to deplete its cash reserves.

The company currently holds approximately $60 billion in debt and experienced operating cash flow losses exceeding $7 billion in the first half of 2024. Analysts estimate that Boeing needs to raise between $10 billion and $15 billion to preserve its credit ratings, which are currently just above junk status.

Late last month, Moody’s indicated Boeing has $16 billion in upcoming commitments, hinting that a downgrade could occur if any equity raise appears insufficient. The firm has $11.5 billion of debt maturing before February 1, 2026, and plans to issue $4.7 billion of shares to acquire Spirit AeroSystems (NYSE:SPR) and take on its debt.

Moody’s, which is reviewing Boeing’s Baa3 rating for potential downgrade, has not provided further details. Creditsights analyst Matt Woodruff believes the company may need to raise between $12 billion and $15 billion to avoid ratings dropping to junk, particularly if the labor strike continues.

It remains uncertain whether non-common stock fundraising options will meet the requirements of credit agencies. S&P Global Ratings aerospace director Ben Tsocanos stated that issuing common equity would be preferable from a credit standpoint. "We would view preferred stock that had a required payment as more debt-like and less supportive of the rating,” he said.

S&P announced on Tuesday that Boeing's rating has been placed on CreditWatch negative, indicating that the planemaker will probably need additional funding soon.