Dilution Fears: Boeing Considers $10 Billion In New Shares As Strikes Strain Liquidity

Boeing shares are lower in premarket trading in New York after a Bloomberg report revealed the struggling aerospace giant, plagued with a multi-week strike by its union, will need to raise at least $10 billion through a new stock offering as cash reserves dwindle. 

People familiar with the matter say Boeing executives are working with advisors to explore different avenues to raise cash as the company’s financial health deteriorates due to the strike of 33,000 workers, which is nearing its third week. 

The company is working with advisers to explore its options, said the people, asking not to be identified discussing confidential matters. Raising equity isn’t likely to happen for at least a month, assuming the planemaker can resolve the strike, because Boeing wants a firm grasp of the financial toll from the walkout by 33,000 workers, the people said. 

No final decision on timing and the amount has been made, and Boeing could end up deciding against the move, the people said.-BBG

The latest labor action estimates from JPMorgan analysts indicate Boeing will lose $1.5 billion each month if workers stay off the production lines of commercial jets and continue picketing in the streets. Three major rating agencies have warned that the strikes could downgrade Boeing’s investment-grade credit rating to speculative territory, in other words, ‘junk.’ 

A liquidity squeeze strangles the company, which burned through a whopping  $8.25 billion in free cash during the first half. Some Wall Street analysts expect a $3.36 billion cash outflow in the third quarter. 

In the market, Boeing’s shares are down around 1% on dilution fears. On the year, shares tumbled nearly 42%.

Last month, Chief Financial Officer Brian West told analysts at the Morgan Stanley conference that Boeing “will take any necessary actions” to preserve its investment grade rating and beef up its balance sheet. 

“We are perfectly comfortable to supplement our liquidity position to support those two objectives,” West told investors when asked about future money raises. 

Just days ago, Goldman analysts Noah Poponak and Anthony Valentini told clients:

“The company faces a balance sheet question, and has suggested raising capital is possible given the importance of the credit rating. We assume Boeing raises $12bn of equity before year-end, which matches the total maturities due in 2025 + 2026, and keeps the cash balance well north of $10bn in the near-to-medium-term while they ramp back up commercial deliveries and strive to resolve defense profitability.”

Raising equity will come after Boeing solidifies a labor contract offer with the union. The timing is uncertain.