Boeing Could Soon be Back in Court Over 737 MAX, New Rivals Rise to Take Advantage of Constrained Capacity

Boeing’s latest debt issuance raised $10 billion, but followed a cut to its credit rating by major ratings agencies. Boeing’s cash and marketable securities were more than halved throughout Q1 and it will take the company some time to re-establish its free cash flow to levels needed to address the significant amount of previously outstanding debt coming due throughout the second half of the decade. Further, the company may face further legal action from the Department of Justice if the circumstances surrounding a 737 MAX panel blowout in January are found to have violated a delayed prosecution agreement Boeing struck with the government in 2021.

Continual issues with Boeing’s family of jets, particularly the 737 MAX, have derailed the company’s financial performance over the past five years, but the co-dominance of itself and Airbus in the commercial aviation business has allowed Boeing to retain significant market share. Frustration with Boeing could yield an opening for new competitors to the duopoly. Brazilian jet manufacturer Embraer has reportedly explored the development of a next-gen narrowbody on par with the size of Boeing and Airbus’s aircraft. A more immediate challenge may come from China’s state-owned Commercial Aircraft Corporation of China (COMAC), which has now booked 300 orders with China’s three largest state-owned carriers.

Related Stocks: The Boeing Company (BA), Airbus SE (EADSY), Embraer S.A. (ERJ)

American aviation giant Boeing raised $10 billion in debt this week, looking to fill the gap left by its ongoing cash burn, which was worth more than $3.9 billion in the first quarter alone. The value of Boeing’s cash and marketable securities at the end of the first quarter was worth just $7.5 billion, cut by more than half from the prior quarter’s $16.0 billion. The new bonds will pile on to outstanding debt remaining from other large raises of $25 billion and $10 billion in 2020 and 2021, respectively. Boeing’s consolidated debt in its most recent earnings report was worth $47.9 billion. Reuters reports that more than $12 billion of this will come due in 2025 and 2026. Ratings agencies slashed the outlook on the company’s credit to just above “junk” status, as S&P assigned the latest issue of unsecured notes a BBB- rating. Moody’s assigned an equivalent Baa3 rating.

Boeing continues to languish under the fallout emanating from its latest 737 MAX debacle, a mid-air blowout of a panel aboard Alaska Airlines Flight 1282 on January 5. MRP has covered this incident in detail throughout previous Intelligence Briefings, as the Federal Aviation Administration (FAA) grounded 171 of 215 MAX 9 jets for a duration of several weeks until January 27. Though the door plugs are manufactured by supplier Spirit Aerosystems, the extra door assembly is only “semi-rigged”, meaning Boeing completes the installation of most door plugs and is supposed to conduct testing under pressurization to ensure all pieces of the plane are properly fastened. The National Transportation Safety Board (NTSB) found that Boeing was, in fact, behind the mis-installation of the door plug. The Department of Justice (DoJ) initiated a criminal probe into the Alaska Airlines incident in March, potentially re-opening a legal mire Boeing appeared to have narrowly escaped.

Back in 2021, Boeing was able to secure a delayed prosecution agreement with the DoJ in connection with fraud conspiracy charges related to…