Boeing eyes $22 billion stock offering to strengthen finances amid ongoing strike

Boeing announced on October 28 its plan to launch a stock offering aimed at raising up to $22 billion, a move designed to bolster its financial position during a prolonged strike by workers and to maintain its investment-grade credit rating, as detailed in a report by Reuters.

The strike, involving approximately 33,000 workers from the machinists union, began in September and has halted production of key aircraft, including the profitable 737 MAX. The company's financial health has significantly deteriorated as a result. Boeing is planning to offer 90 million shares of common stock along with $5 billion in mandatory convertible securities.

Ben Tsocanos, aerospace director at S&P Global Ratings, commented on the implications of the offering, stating, "The offering is certainly favourable for credit quality. We'll factor it into our assessment of the rating in the context of continued negative free cash flow." Notably, Boeing has maintained its investment-grade rating throughout its history.

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Investor interest appears robust, with reports indicating that the offerings are heavily oversubscribed, likely pricing close to the last closing price of $155 per share. In afternoon trading, shares dipped by 0.6 per cent. If demand remains high, Boeing has the option to issue an additional 13.5 million shares and increase the mandatory convertible offering by another $750 million.

Further, from Friday's closing price, Boeing could potentially raise approximately $13.95 billion from the common stock offering, with an additional $2.1 billion if the offering is oversubscribed. The mandatory convertible offering could generate up to $5.75 billion, according to a term sheet, the Reuters report detailed further.

Pricing for the offerings is anticipated to occur after market hours on Monday. The mandatory convertible securities will be marketed to investors with a dividend range of 6.0 per cent to 6.5 per cent, along with a premium of 17.5 per cent to 22.5 per cent based on the last closing price for conversion at or before the maturity date of October 15, 2027.

Maintaining its investment-grade credit rating is crucial for Boeing, especially in light of warnings from rating agencies regarding potential downgrades due to the ongoing strike. Such downgrades could increase the cost of capital for the company.

Boeing has already faced challenges due to a regulator-imposed production cap on its MAX jets following a mid-air incident earlier this year. Coupled with labour disputes, the company has reported a substantial cash burn, including a $6 billion loss in the third quarter alone. Striking workers recently rejected an improved contract offer, with their demands including a 40 per cent wage increase and a return to a defined-benefit pension plan, requests Boeing is unlikely to fulfil.

Earlier this month, Boeing secured a $10 billion credit agreement and announced plans to raise up to $25 billion through various offerings. S&P has cautioned that a rating downgrade may follow if Boeing's cash balance drops below $10 billion or if it increases leverage to meet debt obligations.

As of September 30, Boeing had cash and marketable securities totalling $10.50 billion and faces $11.5 billion in debt maturities by February 2026, alongside commitments related to acquiring Spirit AeroSystems.

The proceeds from the latest offerings are intended for general corporate purposes, which may include debt repayment.