Boeing Co. and its suppliers have come one step closer to a federal bailout that would provide at least $ 60 billion to fight the coronavirus pandemic.
The aerospace industry, including Boeing, would be eligible to tap a portion of the approximately $ 500 billion that Treasury Secretary Steven Mnuchin is distributing as part of a $ 2 trillion stimulus package approved by the Senate late Wednesday. Boeing could also use part of the $ 17 billion loan for companies that are considered critical to national security.
Boeing executives combed legislation before it was passed while evaluating bankers’ proposals to raise additional liquidity, people said. When the travel market collapsed, Boeing planned a number of results and even sought advice from restructuring consultants to understand its options – although such a radical approach was never seriously considered by management, the people who asked not to be named said and privately discuss matters.
The Chicago-based manufacturer is likely to focus particularly on the investment grade debt market once the conditions for federal aid are clear and the financial strategy is in place. The aerospace titanium could probably get more favorable terms from debt than from equity investors, people said.
Boeing rose 10% in New York the day after the 24% rise at 9:35 a.m. to $ 174.98. This was the largest gain since at least 1980. The stock had risen 67% this week through Wednesday as the market chatter switched to rescue conditions from worse scenarios. But they were still down 51% this year, the worst drop from the Dow Jones Industrial Average.
Boeing’s price target was raised from $ 173 to $ 202 by Douglas Harned, an analyst with Sanford C. Bernstein. He said stocks could go up if short-term liquidity threats could be eliminated. The aircraft manufacturer doesn’t appear to be at great risk, “unless the airlines have fleets largely on the ground for most of 2020,” he said.
While U.S. airlines have been struggling for government grants to support the rapidly dwindling cash, Boeing has a $ 15 billion cushion to keep it in the coming months. How much help the planner takes depends on the conditions imposed by the Ministry of Finance and the strength of the capital markets, said one of the respondents.
Company executives had campaigned for US government loans or loan guarantees. Debt markets were closed to sub-investment grade credit companies like Boeing and closed to junk-rated risks like Spirit AeroSystems Holding Inc., which account for about 70% of Boeing’s 737 Max Jetliners.
“I want them to support the credit market, provide liquidity, borrow against our future, which we all strongly believe in, and I think our creditors will do the same,” said Dave Calhoun, Boeing’s chief executive officer , in an interview on Tuesday about the legislature with CNBC. “It’s really that simple. And then we pay it back as soon as possible. And yes, they get an interest payment.”
Resistance to use
The company declined to revive business from the global financial crisis more than a decade ago when the US government took some stakes as a condition for the aid, he said.
Boeing officials have refused to say how much of the requested $ 60 billion the planner would take for itself, while 70 cents of every dollar it receives go to a base of primarily US suppliers.
Boeing has already undergone an in-depth review to deal with the 737 Max crisis. There is now an outcry from opponents of government bailouts, including one from a long-time ally: Nikki Haley, President Donald Trump’s former ambassador to the United Nations, who stepped down from Boeing’s board last week.
However, there is no question of the threat to Boeing from the sudden stoppage of air traffic, as consumers isolate themselves at home to slow the spread of the corona virus. By Tuesday, according to an analysis of Cirium data from Vertical Research Partners, about a quarter of the world’s commercial aircraft fleet – almost 6,000 aircraft – was parked.
Trip upside down
The investment grade bond market saw an impressive turnaround this week after the Federal Reserve’s support, as ten issuers set a price of $ 23.75 billion with heavily oversubscribed order books.
Before the corona virus disrupted global air traffic, Boeing had already taken a $ 13.8 billion delayed two-year loan from a group of banks to survive the 737 Max’s grounding and shutdown. Boeing accessed approximately half of the loan in February and then took full advantage of it in March due to market turmoil. The loan was structured in such a way that full utilization was expected.
Boeing bonds fell last month when the corona virus stopped global air traffic and the credit markets were largely sold out. Bonds recovered on Wednesday, supported by expectations of federal support. According to trace data, the $ 750 million Boeing $ 750 million maturing in 2030 was trading at $ 82.8 cents versus the dollar, an increase of around four points versus Tuesday and a decrease of 106 Points in early March.
Boeing dropped to the lowest investment grade level last week after S&P Global Ratings lowered its rating to BBB after Moody’s Investor Services Baa1 in January. Fitch Ratings reduced the company to BBB on Tuesday.
(Updates with analyst’s comment in the sixth paragraph)
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