Bond
A bond is just another way a corporation can raise money. The process is done like a regular loan by allowing investors to provide the corporation with a specific amount of money and in exchange, the investors get interest that is payed at regular intervals. The Boeing company is among the many companies that have used bond sale in order to raise capital. The following is a summary on how Boeing is using bond to raise capital in order to stay out of debt.
According to a report by the Washington post (“Boeing’s company debt now larger than New Zealand’s after huge bond sale”, 2020), Boeing has raised approximately $25 billion in dept sale. This would allow the company to meet its near-term financial requirements. In order to ride out the coronavirus crisis, the company has avoided federal funding and opted the seven-part bond offering. According to the specifications of the bond offering, the bonds will be redeemed until the year 2060. The bond sale has significantly increased the chance of the company surviving the crisis without government support. In addition, the bond has been said to be oversubscribed and has overall attracted a better pricing than expected.
The bond is also said to have increased the Boeing’s credit ratings after the company reported its second consequentive quarterly loss. The company reported a total loss of $1.7 billion in the first quarter which is a 26% decline as compared to the previous quarter. During the second quarter, the company ended with with a $15 billion cash equivalent. According to analysts, the company required an estimate of between $15 to $20 billion in order to ride out the year. The deal was closed as of 4th March and is deemed to be one of the largest corporate bond offerings.
Boeing has been facing uncertainty In relation to the liquidity of its airlines. The company has reported cancelling of orders and their jet, 737 MAX, has been grounded following two fatal crushes after it was reported that their flight control system played a role in the crush that killed 346 people.
The bond offering by Boeing is expected to help the company get out of debt. In addition, it was an option for a cheaper way of raising revenue as opposed to getting finance from the government which would have been expensive. Finally, the bond is expected to help the company ride out the coronavirus epidemic following the grounding of its 737 MAX jet.
References
Herkert, J., Borenstein, J., & Miller, K. (2020). The Boeing 737 MAX: lessons for engineering ethics. Science and engineering ethics, 1-18.
Boeing’s company debt now larger than New Zealand’s after huge bond sale. Washington Post. (2020). Retrieved 12 October 2020, from https://www.washingtonpost.com/business/2020/04/30/boeing-raises-25-billion-massive-bond-sale-turns-down-bailout-funds/.