Boeing sells $4.8b of bonds as 737 Max scrutiny deepens

Southwest Airlines' Boeing 737 Max aircraft parked at the Southern California Logistics Airport in Victorville, California, in March, following global grounding of the model after two fatal accidents in five months. The grounding is weighing on Boein
Southwest Airlines' Boeing 737 Max aircraft parked at the Southern California Logistics Airport in Victorville, California, in March, following global grounding of the model after two fatal accidents in five months. The grounding is weighing on Boeing's cash flow, and it has abandoned this year's financial forecast.PHOTO: AGENCE FRANCE-PRESSE

NEW YORK • Boeing borrowed in the bond and loan markets after two deadly plane crashes forced the company to scale back production of its most profitable aircraft and cut into cash flow.

The aircraft manufacturer sold US$3.5 billion (S$4.8 billion) of senior unsecured bonds, a person with knowledge of the matter said on Tuesday, and separately tapped its banks for a US$1.5 billion short-term loan, according to a filing. The combined financing is the company's biggest since its 737 Max plane crashed in Ethiopia in March, marking the second time the jet had gone down in the span of five months.

Regulators worldwide grounded the plane after the latest crash, preventing Boeing from delivering new 737 Max aircraft to airlines.

Most payment for an aircraft comes at the time of delivery, so the grounding is weighing on the company's cash flow, and Boeing has abandoned this year's financial forecast. To reduce spending and preserve cash, the company cut production of the 737 jetliner for the first time since the Sept 11, 2001 attacks.

Boeing's latest borrowing signals that it is looking to boost its liquidity as the 737 Max grounding drains its cash over the next two quarters, CreditSights analysts wrote in a note on Tuesday.

The company's operating cash flow will probably break even only in the second quarter if Boeing does not resume deliveries on its 737 Max, JPMorgan Chase analyst Seth Seifman said in a note to clients last week after the company posted first-quarter results. Any decline in cash flow may reverse when deliveries resume, CreditSights analysts wrote. The company is still a "fundamentally solid credit", they said.

Boeing earned US$2.15 billion in the three months ended March 31, a 13 per cent decline from the same period last year.

Boeing's latest borrowing signals that it is looking to boost its liquidity as the 737 Max grounding drains its cash over the next two quarters, CreditSights analysts wrote in a note on Tuesday. The company's operating cash flow will probably break even only in the second quarter if Boeing does not resume deliveries on its 737 Max, JPMorgan Chase analyst Seth Seifman said in a note to clients last week after the company posted first-quarter results.

Tuesday's bond offering came in five parts. The longest portion, 30-year securities, will yield 1.07 percentage points above Treasuries, after initial talk of around 1.25 percentage points.

The securities were generally being offered at yields above the current levels for Boeing's outstanding debt, which is typical for a new bond sale.

Proceeds of the sale will be used for purposes, including repaying debt, buying back stock, acquisitions and capital expenditure, said the person, who asked not to be identified as the details are private.

Boeing had more than US$15.5 billion of debt outstanding at the end of March. It successfully approached capital markets soon after the first fatal crash, a Lion Air flight in Indonesia last October. The company was able to sell US$700 million of bonds the same day. It also sold US$1.5 billion of bonds in February.

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A version of this article appeared in the print edition of The Straits Times on May 02, 2019, with the headline 'Boeing sells $4.8b of bonds as 737 Max scrutiny deepens'. Print Edition | Subscribe