Boeing Co. and its suppliers are closing in on a federal rescue that would provide at least $60 billion to help ride out the coronavirus pandemic, said people familiar with the planemaker’s thinking.
The aerospace industry including Boeing would be eligible to tap a slice of the $454 billion to be distributed by Treasury Secretary Steven Mnuchin under a $2 trillion economic stimulus package, said the people, who asked not to be identified ahead of a Congressional vote. Boeing could also claim part of $17 billion in loans for companies deemed critical for national security.
The Chicago-based manufacturer is expected to focus in particular on the investment-grade debt market once the federal aid terms are clear and the financial strategy is squared away, said the people. The aerospace titan would probably be able to extract more favorable terms from debt investors than from equity investors, the people said.
Stock Surge
Boeing soared 24% to $158.73, the biggest gain in data going back to 1980. The shares have skyrocketed 67% this week as the market chatter switched to bailout terms instead of more dire scenarios. But they’re still down 51% this year, the worst drop on the Dow Jones Industrial Average.
While U.S. airlines fought for government grants to bolster rapidly dwindling cash, Boeing has a cushion of $15 billion to get it through the next few months. How much aid the planemaker takes will vary depending on the terms imposed by the Treasury Department and the strength of the capital markets, one of the people said.
Company executives had lobbied for U.S. government loans or loan guarantees. Debt markets have been balky for lower-tier investment-grade credit companies like Boeing and shut for junk-rated risks such as Spirit AeroSystems Holding Inc., which makes about 70% of the Boeing’s 737 Max jetliners.
“I want them to support the credit market, provide liquidity, allow us to borrow against our future, which we all believe in very strongly and I think our creditors will too,” Boeing Chief Executive Officer Dave Calhoun said of lawmakers in a Tuesday interview with CNBC. “It’s really that simple. And then we pay it back as fast as we can. And yes, they collect an interest payment.”
Resisting Stake
The company opposed reviving deals from the global financial crisis era more than a decade ago, when the U.S. government took some equity stakes as a condition of aid, he said.
Boeing officials have declined to say how much of the requested $60 billion the planemaker would take for itself, while saying that 70 cents of every dollar it receives flows through to a base of mostly U.S. suppliers.
Boeing has already been under withering scrutiny for its handling of the 737 Max crisis. It now faces an outcry from opponents of government bailouts, including one from a longtime ally: Nikki Haley, President Donald Trump’s former ambassador to the United Nations, who resigned from Boeing’s board last week.
But there’s no question of the threat to Boeing from the sudden halt in air travel as consumers isolate themselves at home to slow the spread of the coronavirus. As of Tuesday, about a quarter of the world’s commercial aircraft fleet—almost 6,000 planes—were parked, according to a Vertical Research Partners analysis of Cirium data.
Travel Upended
The investment grade bond market showed a stunning turnaround on Wednesday this week following support from the Federal Reserve as ten issuers priced $23.75 billion with wildly oversubscribed order books.
Before the coronavirus disrupted global airline travel, Boeing had already raised a $13.8 billion two-year delayed-draw term loan with a group of banks to weather the 737 Max grounding and production halt. Boeing accessed roughly half of the loan in February, and then tapped the full amount in March as a precaution due to market turmoil. The loan was structured in such a way that it was expected to be fully drawn eventually.
Boeing’s bonds fell over the last month as the coronavirus halted global airline travel and amid a broad sell-off in the credit markets. The bonds began to recover Wednesday, buoyed by the expectations of federal support. Boeing’s $750 million in 2.95% notes due 2030 traded at 82.8 cents on the dollar, up about four points from Tuesday but down from 106 in the beginning of March, according to Trace data.
Boeing fell into the lowest tier of investment grade last week after S&P Global Ratings cut its rating to BBB, following Moody’s Investor Services’ Baa1 in January. Fitch Ratings cut the company to BBB on Tuesday.