BA Boeing Co

By Doug Cameron 

Boeing Co. is considering plans to raise more debt to bolster finances strained by the grounding of its 737 MAX, according to people familiar with the matter.

The aerospace giant isn't running out of cash. Boeing had about $20 billion in available funds at the end of the September quarter, according to the company's financial statements. But costs associated with the MAX crisis are rising.

Boeing faces compensation claims from airlines and families of the 346 victims of two MAX crashes over the past 15 months. This month, Boeing halted production of the plane, lowering some costs but pushing back the likely date at which payments for finished planes would resume.

Analysts expect Boeing to raise as much as $5 billion in additional debt to help cover expenditures that could top $15 billion in the first half of this year. In addition to spending on maintenance for the MAX's stalled production facilities and finished planes, the company plans to close its $4 billion acquisition of an 80% stake in the Brazilian plane maker Embraer SA's commercial airliner business. Boeing also has to repay some existing debt and fund shareholder dividends.

Chief Financial Officer Greg Smith said in October, when Boeing last provided guidance related to the MAX return to service, that the company didn't expect to have to resort to certain unspecified "levers" to improve its finances. Mr. Smith is also serving as interim chief executive until David Calhoun takes over on Jan. 13.

Now, alongside raising more debt, Boeing is also thinking of deferring some capital expenditures, freezing acquisitions and cutting spending on research and development to preserve cash, people familiar with those possibilities said.

Demand for investment-grade corporate bonds in the U.S. remains favorable after market volume last year fell short of 2018 levels in part because of relatively sluggish merger activity outside a few big deals, analysts said.

Boeing last tapped bond markets in July, with a $5.5 billion multiyear issuance that was almost two times oversubscribed. Boeing secured pricing little changed from offerings in February and April. Those issuances came on either side of the MAX's global grounding in March after the second fatal crash, which involved an aircraft operated by Ethiopian Airlines.

Since July, Boeing's credit rating was downgraded one notch by Moody's Investors Service and S&P Global. The bond issuance and liquidity squeeze pushed the company's debt-to-equity ratio to around 9.6 by the end of 2019, compared with 2 at the end of 2018, according to debt specialists CreditSights.

"They can probably raise money pretty easily, it's just going to cost them a little more," said Eric Bernardini, co-leader of the global aerospace, defense and airlines practice at consultant AlixPartners.

Boeing's search for funding would likely trigger fresh disclosures for investors about the MAX fallout. Boeing would be required to make assumptions on the timeline along which regulators might return the MAX to service. That could include a revised schedule for resuming production of the aircraft as well as estimates of compensation and higher production costs.

Analysts expect Boeing to raise its forecast compensation for MAX customers when the company reports quarterly results on Jan. 29. Boeing has so far earmarked $6.1 billion through a mix of cash, discounts and in-kind benefits for customers.

Mr. Smith has also pledged support for suppliers. Many said they were caught off guard when the company said last month that it would suspend MAX production indefinitely and stop receiving parts from suppliers in mid-January.

Spirit AeroSystems Holdings Inc., the largest MAX supplier, has halted production of its parts for the plane. Others such as Wichita, Kan.-based HM Dunn AeroSystems have said they would avoid layoffs by switching workers to make parts for Airbus SE jetliners and military aircraft.

Bankers focused on the aerospace industry said they are watching the impact of the MAX crisis on the long-term value of that aircraft to the company. Some said Boeing's finance arm might have to rent some planes or provide guarantees to back loans to airlines that have lost money on canceled flights and had to pay to secure alternative jets while the MAX is grounded.

Some aerospace bankers said deal making in the sector was likely to remain on hold until the MAX is cleared to fly, a benchmark that would provide more clarity on Boeing's production plans. Boeing had been on its own mergers-and-acquisitions tear over the past two years with deals focused on expanding its services and venture-capital arms. The company has disclosed only two small deals since the grounding and sold a jet parts business.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

January 06, 2020 06:14 ET (11:14 GMT)

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