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Why Boeing Stock Slumped Today

By Timothy Green – May 1, 2020 at 4:25PM

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The company shut the door on government aid.

What happened

Shares of Boeing (BA -0.39%) were down Friday after the troubled airplane manufacturer said that it did not plan to seek additional funding through the capital markets or the U.S. government following a $25 billion bond offering expected to close on May 4. The stock was down 5.5% at market close.

So what

In a filing with the Securities and Exchange Commission, Boeing laid out the details of its massive bond offering. Senior notes with 7 different maturities will be sold, ranging from 2023 to 2060. The notes maturing in 2023 will carry a coupon rate of 4.508%, while the notes maturing in 2060 come with a coupon rate of 5.93%.

An airplane.

Image source: Getty Images.

In total, Boeing will raise $25 billion through this offering. The company said in a statement on Thursday that demand for the offering had been robust. Due to the strong response, Boeing does not plan to raise any additional capital or seek government assistance once the transaction closes.

Now what

Boeing is facing multiple crises at once. The 737 Max remains grounded following two fatal crashes, and the timeline for its return is in flux. On top of that, airlines and the travel industry as a whole are in turmoil as the coronavirus pandemic ravages demand. It may take years for air travel to fully bounce back, which could mean a prolonged period of depressed demand for commercial airplanes.

Boeing reported free cash flow of negative $4.7 billion in the first quarter alone. The company is cutting production of some planes and plans on reducing its workforce by around 10%, moves that will help get its cash burn under control.

With this $25 billion debt offering, Boeing believes it will have enough cash on hand to survive without a government bailout. Investors didn't seem thrilled with the decision to forgo government aid, sending the stock lower on Friday.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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