Boeing dodges a bullet with US$25 billion bond deal

Company expects new liquidity to help it avoid any government aid that would have tied its hands on compensation, dividends and other restrictions, but credit rating inches closer to junk status.

Boeing continued building the MAX even when it was grounded. (PHOTO: Shutterstock)

American plane maker and defence giant Boeing dodged a huge financial bullet last week when financial markets reacted more than positively to what initially was a planned US$10 billion offering that quickly rose to US$25 billion, allowing it to, at least for now, avoid any concessions it would have to make had it accepted what some said was a US$60 billion government aid package designed for it and its suppliers to help them weather the COVID-19 pandemic that has all but killed commercial aviation worldwide.

Boeing, in a statement issued on 30 April, said it was “pleased with the response to our bond offering today, which is one of several steps we’re taking to keep liquidity flowing through our business and the 17,000 companies in our industry’s supply chain. The robust demand for the offering reflects strong support for the long-term strength of Boeing and the aviation industry. It is also in part a result of the confidence in the market created by the CARES Act and federal support programmes that have been put in place – a testament to the administration, Congress and the Federal Reserve”.

Boeing said it expected the deal to close Monday (4 May), adding “we do not plan to seek additional funding through the capital markets or the U.S. government options at this time. The bond offering includes debt instruments with an aggregate principal amount of $25 billion across seven tranches with maturities ranging from three to 40 years. We will continue to assess our liquidity position as the health crisis and our dynamic business

Analysts said the seven-part offering includes bonds with 3-40 year maturities was oversubscribed and attracted better pricing than might have been expected for a company with Boeing’s credit rating and challenges. The offering carried pricing and concessions more akin to the top end of high-yield issuers, said analysts at CreditSights. S&P Global earlier downgraded Boeing to BBB-, a notch above speculative grade. If the deal closes as expected, it will be one of the largest ever corporate-bond offerings.

Boeing’s main competitor, Airbus, which has warned its staff it may have to cut thousands of jobs, reported a consolidated first-quarter loss of €481 million (US$521.9 million) compared to last year’s consolidated net income of €43 million in the same quarter a year ago and attributed the disappointing results to the global shutdown of the commercial aviation industry due to the COVID-19 pandemic.

Download Boeing’s earnings presentation here.
Replay the Boeing earnings conference call here.

The company said consolidated revenues fell to €10.6 billion compared to €12.5 billion in the first quarter a year ago,, “reflecting the difficult market environment impacting the commercial aircraft business with 40 less deliveries than a year earlier, partly offset by a better mix and more favourable foreign exchange environment” The consolidated loss per share was €0.61 compared to a 2019’s first-quarter earnings per share of €0.05. Airbus reported its earnings the day as Boeing.

Boeing has faced incredible pressures for the last two year following two crashes of its once best-selling 737 MAX narrowbody jet that killed 346 people, its subsequent ground that led to millions of dollars in compensation paid to airlines for undelivered jets and then the near total grounding of commercial aviation because of the COVID-19 pandemic that has all but stopped all international travel and reduced domestic networks to a trickle.

Friends and relatives of the dead passengers on Lion Air’s Boeing 737 MAX want Boeing executives prosecuted. (PHOTO: Shutterstock)

Boeing ended the first quarter with US$15.5 billion in cash and equivalents, with analysts estimating it required between US$12 billion and US$20 billion more this year to ride out the loss of revenue from delayed aircraft sales, pay suppliers and fund existing debt, according to media reports. The company had already drawn down a US$13.8 billion term loan this year and saved more than US$8 billion in funding needs by suspending its dividend and dropping a planned deal with Brazil’s Embraer.

To placate investors over the risk of a potential downgrade to junk status, the bonds contained a provision that raises the coupon paid to bondholders if Boeing loses its investment-grade status, according to analysts. Boeing had faced a 1 May deadline set by the US Treasury to seek priority funding from a US$17 billion fund for national security-related companies. In addition to the bond deal, Boeing also announced it would cut its 160,000-person workforce by about 10 percent, reduce 787 Dreamliner production, work to get the 737 MAX back in the air and conserve cash wherever possible.

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Matthew Driskill is the Editor of Asian Aviation and is based in Cambodia. He has been an Asia-based journalist and content producer since 1990 for outlets including Reuters and the International Herald Tribune/New York Times and is a former president of the Foreign Correspondents Club of Hong Kong. He frequently appears on international broadcast outlets like CNN, Al Jazeera and the BBC and has taught journalism at Hong Kong University and the American University of Paris. Driskill has received awards from the Associated Press for Investigative Reporting and Business Writing and in 1989 was named the John J. McCloy Fellow by the Graduate School of Journalism at Columbia University in New York where he earned his Master's Degree.


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