Boeing's ongoing financial crisis deepened this week as the company announced plans to borrow tens of billions of dollars to mitigate the fallout from a crippling worker strike and years of safety and operational issues. On Tuesday, Boeing filed plans to borrow $10 billion from a consortium of banks, while also seeking to raise $25 billion through stock and debt sales. These moves highlight the mounting pressure on Boeing as it grapples with labor unrest and a series of compounding crises.
The financial strain stems, in large part, from the strike by 33,000 unionized factory workers, represented by the International Association of Machinists and Aerospace Workers (IAM). The strike, now in its second month, has brought production of Boeing's best-selling planes-including the 737 MAX, 767, and 777 widebody jets-to a halt. Workers are demanding a 40% wage increase spread over four years, but Boeing's offer of a 30% wage hike over the same period was rejected. Efforts by U.S. Acting Labor Secretary Julie Su to mediate the conflict have so far failed to resolve the deadlock.
Tensions between Boeing and the IAM have been escalating, with both sides accusing the other of unfair labor practices during negotiations. Boeing withdrew its latest offer after talks with union representatives and federal mediators collapsed last week. The company's leadership, including new CEO Kelly Ortberg, is now under significant pressure to find a resolution that could bring workers back and restore production. The IAM, for its part, plans to hold a large rally in Seattle on Tuesday, signaling that workers are not backing down from their demands.
The stakes are high for Boeing, as the ongoing strike compounds the company's already fragile financial situation. Boeing announced last week that it would cut 17,000 jobs in a bid to stabilize its finances and avoid a further credit downgrade. The planemaker's credit rating is now teetering just above "junk" status, and any further deterioration could significantly increase the company's borrowing costs.
Boeing has been grappling with a series of operational and safety issues over the past several years, leading to an accumulation of core operating losses that exceeded $33 billion. The company's financial troubles intensified after two fatal 737 MAX crashes in 2019 led to a 20-month grounding of the plane, Boeing's best-selling aircraft. In addition to the operational setbacks, the company faced significant legal challenges. Boeing pled guilty to deceiving the Federal Aviation Administration during the certification process for the 737 MAX, a case that has drawn intense scrutiny from regulators and lawmakers alike.
The aftermath of these crises has left Boeing in a precarious position, with the current strike only adding to its cash flow problems. The halt in production of its key commercial planes, including the 737 MAX, has cut off a critical source of revenue for the company. Boeing typically receives the majority of payments for aircraft at the time of delivery, meaning that the longer the strike persists, the more acute the financial strain becomes.
Adding to Boeing's woes, the company is now facing delays in the rollout of its next-generation widebody jet, the 777X. Originally scheduled for delivery in 2020, the aircraft has faced repeated delays due to technical issues and problems discovered during test flights. The latest announcement from Boeing confirmed that the 777X will not begin deliveries until 2026, further pushing back a key revenue stream.
Despite these challenges, Boeing remains a dominant force in the global aerospace market, alongside its European rival, Airbus. Both companies operate in a duopoly, with backlogs of orders stretching years into the future. Boeing's ability to weather the current storm is bolstered by this unique market position. While the strike and other production issues have caused short-term disruptions, many airlines have no alternative but to wait for Boeing to fulfill their aircraft orders. Airbus, with its own production limitations, is unable to absorb Boeing's market share quickly enough to provide relief to airlines seeking new planes.
Nevertheless, the financial pressures on Boeing are mounting. The company's long-term debt has ballooned to $53 billion, up from $10.7 billion just five years ago. Boeing's reliance on borrowing to sustain its operations is a direct consequence of the combination of safety scandals, operational setbacks, and the ongoing labor strike. The company's ability to sell stock and debt on Wall Street, however, reflects the continued confidence of investors in its long-term viability, despite the current challenges.
CEO Kelly Ortberg is now tasked with steering Boeing through one of the most tumultuous periods in its history. His leadership will be tested not only by the need to resolve the strike and restore production but also by the broader challenge of regaining trust from regulators, investors, and customers. Boeing's financial future, though secured in part by its market position, will depend heavily on its ability to manage both labor relations and the broader operational issues that have plagued the company in recent years.
