What happened
Shares of Boeing (NYSE: BA) traded up 5% on Wednesday after a key executive said the $25 billion in new debt the company raised earlier this year should be enough to get through a multiyear global aviation crisis.
So what
Boeing has been hit hard by the COVID-19 pandemic, which has caused airlines to rethink growth plans and instead ground large portions of their existing fleets. With travel demand expected to be weak for years to come, Boeing is likely facing a long period of sluggish new jet sales.
Its shares lost nearly 70% of their value earlier in the year on fears the pandemic could create a liquidity crisis at the sprawling aerospace company, but Boeing was able to solidify its cash balance via a $25 billion bond sale in April.
Image source: Boeing.
Speaking at a Jefferies investor conference on Wednesday, Boeing CFO Greg Smith said the company does not believe it will need to raise more cash to get through the downturn. He also said that as sales recover, paying down the debt will be "priority one" for the company.
That's good news for investors, as the $25 billion in new debt added about $1 billion in new annual interest payments.
Smith also said that Boeing is on track to get its 737 Max flying later this year. The plane has been grounded since March 2019 after a pair of fatal accidents, and the grounding is one of the principal reasons Boeing has bled through nearly $10 billion in cash during the first half of 2020.
Now what
Despite Smith's positive comments, investors need to temper their enthusiasm. It's good that Boeing doesn't expect things to worsen, but they are not going to get better for a long time. Even after the pandemic is over, airlines will have billions in fresh debt to deal with and are unlikely to be in a position to aggressively buy new aircraft.
I believe the bottom is in for Boeing shares, assuming the company doesn't encounter any new issues in its efforts to get the 737 Max recertified. But it's hard to find a catalyst to get the stock moving substantially higher in the next few years. Thus, investors should proceed with caution.
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