Boeing: Even If They Survive, Deleveraging May Take Almost One Decade

Summary

• There is currently significant uncertainties surrounding the exact path Boeing will take going forward, with some even voicing concerns that they could face bankruptcy.
• Whilst the world continues suffering from this coronavirus recession, they continue racking up debt, and thus even if they survive, they will have to go through a period of deleveraging.
• Naturally, the extent of time this will take will depend on how quickly conditions recover; however, given the airline industry has been decimated, assumptions should be conservative.
• Based upon two conservative scenarios I created using their historical performance as a reference point, it appears as though this could take upwards of eight years.
• Given the sheer uncertainties and the apparent long path ahead of deleveraging, even if they survive without external assistance, I believe that a neutral rating is appropriate.

Introduction

The uncertainties surrounding Boeing (NYSE:BA) have reached the highest point possible in their entire existence, with differing pathways forward ranging from receiving a government bailout, raising equity privately, or even in the more extreme scenario, filing for bankruptcy. Even if they manage to navigate these unprecedentedly turbulent times without using any external assistance, they still face a long path ahead of deleveraging as their debt continues climbing every day during this crisis.

Background

There is currently little purpose analyzing their financial position as it stands right now; everyone already knows they are in crisis mode with the path forward incredibly cloudy and uncertain. Since the events that have brought this once fortress of American corporate strength to its knees have already been widely discussed, namely the 737 Max issues and the coronavirus recession, there are few reasons to rehash these again.

Through analyzing the potential time required to deleverage, it can provide insights into their ability to fully reinstate their shareholder returns and even more importantly, rebuild their financial strength, resilience and reduce overall investment risk. The graph included below displays their cash flows and net debt since the end of the last recession in 2008-2009 and was included to provide historical context to draw upon for the subsequent analysis.

Image Source: Author.

Deleveraging Scenarios

It can be seen that by the end of 2019 their net debt, which routinely was actually in a net cash position, already reached a sizable $17.272b with an analyst expecting it could reach a staggering $31b later in the third quarter of 2020. This was selected as a starting point for the deleveraging scenario analysis, which assumes they end 2020 with net debt still sitting at $31b, as there is minimal scope to reduce this during the fourth quarter. Overall, the analysis aimed to provide conservative middle of the

Analyst’s Disclosure: I am/we are long LMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.