Boeing and Airbus battle severe liquidity headwinds
By Geoffrey Thomas Wed Apr 29, 2020
Boeing and Airbus are both battling severe liquidity headwinds with the US plane-maker chasing a multi-billion-dollar bond issue, with investment banks, to keep it flying as moves to cull 10 per cent of its workforce.
Across the Atlantic, its arch-rival Airbus is warning of the “gravest crisis the aerospace industry has ever known.”
The gravity is illustrated by the leap in stored aircraft from 1,851 in December to 13,981 today.
Boeing is lining up banks to market a potential offering of US$10B or more if market conditions are favourable.
READ: Emirates ramps up COVID-19 refunds.
It is also considering applying to the US Treasury under the US$17B program for companies critical to national security.
New York aviation analysts Bernstein says however that it does not “believe that either Boeing or Airbus is headed for a critical liquidity situation unless the coronavirus crisis extends substantially into next year.”
It adds that Boeing was already in significant pain over the grounding of the MAX but benefits from over US$3 billion a year in cash from its defence businesses.
Bernstein says that despite the MAX crisis Boeing started the year “with US$9.5 billion in cash on its balance sheet but has since raised debt to add US$13.8 billion and has a US$9.6 billion revolver that is untapped.”
“It also cancelled its dividend that would have been over US$4 billion and has now cancelled the (merger with) Brazil-based Embraer, a deal worth US$4.2 billion.
Bernstein said that it expects Boeing's free cash flow to be negative US$15 billion for 2020.
“While this is all substantial, we still expect the company to have adequate cash to make it through.”
Boeing’s backlog is 5049 aircraft but it suffered 379 cancellations this year.
Airbus’ situation is different and while it has access to €30 billion in liquidity, the main issue will be its ability to flex employment levels says, Bernstein.
“We are not expecting Airbus to hit a critical point, despite warnings from management.”
Yesterday Airbus Chief Executive Officer Guillaume Faury said at the company’s 1st quarter earnings call that it is “implementing a number of measures to ensure the future of Airbus.”
These include bolstering available liquidity, adapting production rates, concentrating on cash containment and its longer-term cost structure to ensure it can return to normal operations once the situation improves.
Airbus backlog is 7,650 aircraft.
The upside for both giants is that many of their major customers, like Emirates, are being funded by governments.
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