Boeing is considering raising at least $10 billion worth of shares

(Bloomberg) — Boeing Co . ( BA ) is considering raising at least $10 billion by selling new shares as the planemaker seeks to replenish cash reserves further depleted by an ongoing strike, according to people familiar with the discussions.

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The company is working with advisers to explore its options, the people said, asking not to be identified discussing confidential matters. The equity raise won’t happen for at least a month, assuming the planemaker can resolve the strike, as Boeing wants a firm grasp on the balance sheet from walkouts by 33,000 workers, the people said.

A Boeing spokesman declined to comment. No final decision has been made on the timing and amount, and Boeing could end up deciding against the move, the people said.

Boeing is under pressure to shore up its finances and retain its investment grade credit rating. The company is on the verge of falling into speculative territory, which would further increase the cost of servicing its $58 billion in debt. The situation has been exacerbated by the strike, now in its third week, which has halted production of Boeing’s single-aisle airliner as each day of shutdown further reduces supplies.

The US planemaker has seen its financial reserves dwindle following a near-catastrophic accident in January that forced Boeing to slow production of its 737 Max jet. If Boeing goes ahead, a sale of this magnitude would be the largest by a public company since the $12.3 billion sale of Saudi Arabian Oil Co. in June.

Shares fell as much as 3.6 percent in premarket trading as investors weighed the dilutive effect of a potential share sale. The planemaker has lost 42% of its value this year, putting it on track for its worst annual return since the financial crisis of 2008. That leaves Boeing with a market value of about $93.6 billion.

Talk suspended

Boeing is facing a cash crunch after burning through $8.25 billion in free cash in the first half of the year. The US planemaker has slowed work on the cash-cow 737 Max and other planes to fix quality deficiencies revealed by the January 5 plane crash. The workers rejected two offers from the company for higher wages, and the two sides hired a mediator to help break the impasse.

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Analysts expect Boeing to suffer a cash outflow of $3.36 billion in the third quarter, according to data compiled by Bloomberg. The strike would cost the company about $1.5 billion for every month workers are out of work, JPMorgan Chase & Co. estimates.

The exits risk reducing Boeing’s cash balance to the point where the big three rating agencies would be forced to act. Fitch Ratings warned that a prolonged strike could have “a significant operational and financial impact, increasing the risk of a downgrade”.

“Perfectly comfortable”

Chief Financial Officer Brian West told analysts at a Morgan Stanley conference last month that Boeing “will take whatever steps are necessary” to keep its investment-grade rating and repair a balance sheet. Boeing has already initiated a savings plan that includes furloughs for workers, a hiring freeze, as well as a pay cut for executives.

“We’re perfectly comfortable supplementing our liquidity position to support those two goals,” West said when asked if the company might need to raise debt or equity.

While Boeing is currently strapped for cash, the company points to an order backlog of 5,490 planes, representing roughly half a trillion dollars in revenue. The 737 Max is mostly sold by the end of the decade, and European rival Airbus SE is also struggling to ramp up production and has failed to capitalize significantly on Boeing’s woes.

The U.S. planemaker has a history of hitting the markets shortly after releasing quarterly earnings, and its next such report is scheduled for late October. The company most recently issued $10 billion in late April, about a week after it reported its first-quarter results.

The company also said it wants to buy back Spirit AeroSystems Inc., the troubled supplier at the heart of some of the current production problems. While Boeing plans to pay for the $4.7 billion deal in stock, reintegrating its most important supplier will require additional investment to transform the business.

— With help from Siddharth Philip, Ryan Gould and Dinesh Nair.

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