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Jan 6, 2020

Boeing drops on reports of potential fundraising as 737 Max crisis drags on

Boeing aims to fix strained relationship with U.S. government

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Boeing Co. fell in early trading on reports that the company is weighing a move to raise more debt following the grounding of its 737 Max and that the jetliner’s return to service could face further complications.

While Boeing had about US$20 billion in available funds at the end of the third quarter, costs stemming from the Max crisis are increasing, the Wall Street Journal reported Monday. That has prompted the company to consider raising additional debt, the paper said, citing unidentified people familiar with the matter.

Boeing is halting output of the Max, a model that has yet to gain approval to resume flights after two fatal crashes prompted a global flight ban in March. While the production hiatus has reduced some costs, it also means a longer wait for payments for finished planes. The Chicago-based company also faces compensation claims from airlines disrupted by the grounding, as well as from families of the crash victims.

The shares dropped 1.2 per cent to US$328.75 before the start of regular trading in New York. Through Friday, Boeing had slumped 21 per cent since the second of the crashes, which killed a total of 346 people.

Boeing Chief Executive Officer Dennis Muilenburg was ousted last month and will be replaced next week by David Calhoun, a board member who took over as chairman in October.

Analysts expect Boeing to raise as much as US$5 billion in extra debt to help cover spending that may exceed US$15 billion in the first half, the Journal said. Funds would help maintain Max production facilities and finished planes, as well as close the US$4 billion purchase of an 80-per-cent stake in the airliner business of Embraer SA.

Weighing Simulators

Meanwhile, U.S. regulators are considering requiring pilots to complete simulator training before they can operate the Max again, the Wall Journal reported Sunday. The story cited government and industry officials familiar with the matter.

The Federal Aviation Administration originally rejected the idea since it would cause extra costs and delays for airlines, the Journal said. But in recent weeks officials said there has been increased interest among agency and industry safety experts in requiring such training.

The FAA’s formal decision isn’t expected until at least February, and the situation remains “fluid,” according to the paper. An agency spokeswoman declined to comment on specifics, saying more analysis and testing is required. A spokesman for the company told the Journal that Boeing is “evaluating all aspects of a safe return to service including pilot training, procedures and checklists.”

The New York Times reported on Sunday that Boeing was experiencing new problems with the plane that go beyond the initial software malfunctions that played a role in those crashes.

One of those issues is whether two bundles of wires are too close to each other, raising the risk of a short-circuit that could affect control of the plane’s tail.