Boeing moves to preserve cash, withdraws $ 13.8 billion loan


Boeing Co updates

Boeing lost about a fifth of its market value Wednesday when the aircraft maker took steps to preserve cash in the face of a coronavirus pandemic that has caused unrest in the aviation industry and threatens to further weaken its balance sheet.

The company, which is already grappling with the costs of grounding its 737 Max plane, has taken advantage of the full amount of a $ 13.8 billion loan signed just a month ago, according to people familiar with the deal.

Boeing also instituted a hiring freeze and limited overtime for all employees except for those working to return the Max to service and in “other key efforts” to support customers, according to a memo from the company’s two top executives. Boeing. It also restricted travel and discretionary spending to business-critical activities.

Shares of the aircraft maker fell 18 percent to less than $ 200 for the first time since July 2017 and have now more than halved since the March day of 2019 when the Max suffered its second fatal accident, which which led to a worldwide ban on its use.

“The coming year is shaping up to be a challenge for our business like any in the recent past,” wrote David Calhoun, CEO, and Greg Smith, CFO, in a message to employees.

“In addition to the work of safely returning the 737 Max to service and the financial impact of the Max production hiatus, we are now facing a global economic disruption caused by the Covid-19 coronavirus.”

Bar chart of largest stock price declines in one day,% showing Boeing stock fell the most on record after loan withdrawal

Boeing turned to its banks in January to help deal with the rising costs of the Max crisis. It has set the bill at $ 18.6 billion in compensation to airlines that have been disrupted by grounding, increased spending during the aircraft’s production life cycle, and the cost of continuing to pay workers during a shutdown. production. The figure does not include legal costs related to the deaths of 346 people.

The loan, originally set at $ 13 billion from a syndicate of more than a dozen banks, including Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and Morgan Stanley, has now been increased to $ 13.8 billion and is has used it in its entirety. A person familiar with the decision said it was made “out of a precaution.” Bloomberg first reported on the reduction.

Shares of Boeing had already plummeted as the coronavirus inflicted financial damage on its airline customers.

Airlines have cut flights and slashed their targeting, and the International Air Transport Association estimates the disease could cost the industry $ 113 billion this year. Scott Kirby, president of United Airlines, said Tuesday that revenue could drop as much as 70 percent this spring.

Some Boeing investors are concerned that capacity cuts could lead airlines to delay aircraft deliveries in the second half of the year, reducing the manufacturer’s cash flow, said Peter Arment, an analyst at Robert W Baird.

While Boeing has sufficient liquidity if the Max returns to service in the middle of the year, the company was spending a lot of cash in the first half of the year, he added. “It is a perfect storm at the moment because we are not clear about Covid-19 and its impacts, and we are still waiting for positive news, which we hope, about the return of the 737 to service.”

Read more about the impact of the coronavirus

Subscribers can use myFT to follow the latest ‘coronavirus’ coverage


Previous Magnitude 5 earthquake 7 strikes 063638442
Next In rare battery startup move to public markets, Eos raises millions from listing on Nasdaq