Boeing (NYSE:BA) put to rest questions about its viability back in April by raising $25 billion in new debt. Now, with the 737 MAX airborne again and airlines slowly recovering, the company is considering selling issuing shares to pay down some of that debt.
Appearing at a Credit Suisse investment conference Friday, Boeing chief financial officer Greg Smith said the company's focus in the months to come will be on paying down some of its massive $61 billion in debt. "When it comes to capital deployment, ... it will be all about paying down that debt. We'll continue, obviously, to invest in the business, but we got to get this debt balance down. And we'll look for every opportunity to do that in the most efficient way, including equity," said Smith..
The company has struggled since the March 2019 grounding of the 737 MAX, which drained free cash flow. Boeing's net debt today is four times higher than it was prior to the grounding, and with airlines focused on rebuilding their balance sheets once the pandemic is over, we are unlikely to see a surge in new plane sales in the next few years.
If Boeing does decide to do a secondary offering, it would be selling into a rallying market. The stock is still off nearly 30% for the year, but has rallied 50% in the last month on positive signs that the business is improving.
The 737 MAX flying again is a big part of the bull case for Boeing, but other plane models continue to struggle. Production of the 787 Dreamliner, already scheduled to fall from 10 per month to six per month by mid-2021, will instead be cut to five airframes per month due to tepid demand.
Back in October, we noted that 787 deliveries were trailing production figures, questioning how long Boeing could afford to continue to hit its manufacturing targets for the plane. Boeing has already announced plans to shutter one of its two Dreamliner assembly lines, and the further cut in production suggests that the company does not expect demand for the plane to recover any time soon.