Boeing faces labor strikes, production issues, and regulatory scrutiny.
To offset financial ruin, the company is selling $15 billion of common stock and mandatory convertible bonds. The sale is part of an ongoing initiative to stabilize finances and protect Boeing’s investment-grade credit rating while minimizing shareholder dilution.
The financing structure lets the company count bonds as equity, hopefully eschewing concerns about its debt load, a critical factor in maintaining its credit rating.
David Erickson, adjunct associate professor of business at Columbia Business School, expects market analysts to closely watch Boeing’s latest move. A failure to maintain its investment-grade credit rating “could significantly impact its borrowing costs,” he says.
Boeing’s reliance on hybrid financing suggests an effort to balance raising cash with avoiding excessive dilution, according to Erickson. “Depending on how the mandatory convertible bonds are structured, credit rating agencies can treat them as equity, which helps Boeing raise substantial capital while protecting its credit rating.”
Boeing is raising cash without further overleveraging its balance sheet. The firm’s unique challenges, compounded over the last few years, from 737 MAX production delays to new regulatory hurdles. More recently, a labor strike has cost the company millions of dollars per day, straining its cash flows.
“Boeing’s operational issues are largely self-inflicted, compounded by management changes making them more severe than typical industry challenges,” Erickson says, emphasizing the financing’s urgency for the company. Boeing shareholders get some protection from immediate dilution, as the mandatory convertible bonds will convert into equity at a premium. “Although convertibles can dilute shares over time, they give Boeing the breathing room it needs to manage its financial outlook,” Erickson notes.
