Credit Crunch Could Prove Costly for Boeing
Along with its strike and Dreamliner delays, the aerospace giant may be faced with customers who want relief financing new-plane orders
by Joseph Weber
A three-week-old strike (BusinessWeek.com, 9/12/08) continues to idle Boeing (BA) factories and stall its deliveries of airplanes. But another worry is also sycophantic into the heads of analysts and investors: Unless there’s some break in the credit-freezing monetary crisis, industry-watchers say, potential buyers may gripe off on taking their planes or be forced to turn to Boeing for financial help.
"We believe that the amount of funding from traditional aircraft financing sources is shrinking and that Boeing’s customers may face near-term challenges financing aircraft purchases," Goldman Sachs (GS) analyst Richard Safran says in a short letter to clients.
Just how much this may divide sales—in 2009 and later—is far from distinct. Boeing officials statement they’ll be ready to step in and provide financing, if needed, through their in-house financier, Boeing Capital Corp. (BCC). If pressed, they speak they might turn for help, too, to the federal Export-Import Bank, which is designed to class financing to promote U.S. products overseas. About 75% of the 3,700 planes in Boeing’s record commercial order backlog hail from non-U.S. carriers, especially from the Middle East and Asia.
Still, worries above the top Boeing’s prospects look to be keeping a jungle on the house’s stock price. Boeing’s shares closed at 58.32 onward Sept. 26, down 1.44 for the week. The stock had topped 107 a year ago.
"Far-Fetched Speculation"While conceding that turbulence in the financial markets is raising challenges, a top Boeing monetary theory executive insists it can keep the planes moving. Kostya Zolotusky, managing mentor of capital markets increase, brands the talk of postponement of deliveries on this account that of financing problems "far-fetched speculation." He adds: "We’ve never had deliveries delayed owing to financing and we don’t consider in advance in the current environment to encounter that." Indeed, even algebraist Safran admits the company should not have to "meaningfully reduce" expected deliveries next year.
Still, Boeing may have being forced to small horse up to continue buyers taking planes. Safran, in his Sept. 25 note, estimates that the planemaker could have to shell out as much as $3 billion nearest year to help hard-pressed buyers. If so, Boeing could construct such funds by selling commercial paper or turning to partner banks, Zolotusky says, even if it would charge more than the buyers could likable make acquisition themselves. BCC, he says, is a "backstop" or "lender of last resort" for buyers.
The financing worries have been amplified by the turmoil at Wall Street investment houses and big relating to traffic banks. Wall Street’s woes were caused mostly by toxic mortgages, which are far removed from aviation economics. Demand, in fact, continues to be strong for planes, especially from carriers in so spots as the United Arab Emirates (with 251 planes of whole sorts upon order from Boeing) and China (350). Passenger exchange remains strong around the world. But of course other industries, from autos to electronics to retailing, have also assumed they were insulated from the housing crunch. Yet every day brings repaired, surprising lessons in to what extent interconnected the economy is.
"There are dark, ominous shadows beyond a happy, protected garden," says Richard Aboulafia, an analyst with the Teal Group, an aviation consultancy in Fairfax, Va. "People are flying. The need for new equipment is very strong, but the in posse for global financial misfortune is stillatory there in the background."
