"Boeing Secures $12 Billion in Financing to Resolve 737 Max Crisis"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] American aircraft manufacturer Boeing has secured more than $12 billion (approximately 14 trillion won) in funding from the financial sector, CNBC and other outlets reported on the 27th (local time), citing sources. This move comes as a response to increased cost burdens following the suspension of 737 Max production due to consecutive crash accidents.

According to reports, Boeing recently secured this amount of funding through about ten banks. Earlier, CNBC reported on the 20th that Boeing was pursuing a loan of $10 billion or more. The funds are not provided in a form that can be used immediately but are available through a "delayed draw" method, allowing withdrawals over a two-year period. Foreign media also reported that the loan itself has not yet been finalized.

However, CNBC evaluated, "The amount secured is at least $2 billion more than Boeing initially planned," adding, "This is a sign of Wall Street's confidence in Boeing."

The Boeing 737 Max model has been grounded in over 40 countries worldwide following consecutive crash disasters. In October 2018, a 737 Max crashed in Indonesia, killing all 189 passengers on board, followed by another crash in Ethiopia in March last year, where 157 people died. As the suspension of operations prolonged, Boeing temporarily halted production of the 737 Max model starting this year.

Boeing is under pressure as its performance deteriorates due to compensation costs related to the series of 737 Max crashes, as well as the suspension of operations and production. Experts estimate that Boeing is losing about $1 billion per month due to the grounding of the 737 Max.

Accordingly, related companies are also facing increased cost burdens and pressure from declining performance. According to The Wall Street Journal (WSJ), AAR Corp., a major parts manufacturer for the 737 Max, expects a $400 million decrease in sales this year. John Plant, CEO of AAR, cited uncertainty over the 737 Max as the biggest management challenge this year during a conference call and hinted at the possibility of temporary layoffs.

WSJ reported that, like AAR, 600 major parts suppliers for the 737 Max and hundreds of small businesses are considering securing funds or temporarily laying off employees during the production halt period to bear high costs, with plans to rehire once production resumes. Spirit AeroSystems, the largest parts supplier for the 737 Max, also announced plans to temporarily lay off 2,800 employees.

Boeing has completed upgrades to the Maneuvering Characteristics Augmentation System (MCAS), an automatic stall prevention system, and is awaiting approval from U.S. aviation authorities. Boeing is also scheduled to announce its performance results for last year on the 29th. The market is paying close attention to Boeing's statements regarding future production and the resumption of operations.