Boeing Reportedly Seeking $10 Billion in Loans to Cover 737 MAX Costs

Boeing Co. is actively talking with some of the biggest banks in the world, seeking loans of up to $10 billion combined to cover the costs of the grounding of its 737 MAX plane.

And according to CNBC, the airline manufacturing company’s credit is still good enough to have already secured $6 billion from Citigroup, Bank of America Merrill Lynch, Wells Fargo and J.P. Morgan.

The 737 MAX was involved in two separate crashes two months apart last year, killing 346 passengers and crew. It was grounded by the Federal Aviation Administration in March of 2019, and Boeing has faced setback after setback in trying to get the plane re-certified for flight.

The $10 billion would help cover the cost to Boeing, which has taken an enormous financial hit and has ceased further production of the 737 MAX. But the grounding has also cost others that do business with Boeing – most notably airlines and parts manufacturers.

Spirit AeroSystems, for example, which makes fuselages and other parts for the 737 MAX, said earlier this month it would lay off 2,800 workers. The airlines have lost more than $1 billion in revenue in the last 10 months, and Boeing took a $5.6 billion pre-tax charge last July to compensate its customers for the grounding.

“Recent developments suggest a more costly and protracted recovery for Boeing to restore confidence with its various market constituents, and an ensuing period of heightened operational and financial risk, even if certification of the Max comes relatively near-term, as expected,” Jonathan Root, lead analyst on Boeing for Moody’s Investor Services, wrote in an investor’s note, CNBC reported.

The network also reported that the loans Boeing is seeking will be two-year, delayed-draw loans. That means Boeing can withdraw from it later, instead of immediately, and thus not affect its credit rating as another type of loan or bond would.

But, the pressure is on because this must work for Boeing. The company is closing on a $4 billion majority stake in Embraer’s commercial plane business. It could become perilous going forward if both Boeing and Embraer’s commercial division are affected, or even forced to shut down.