Daily Memo: Boeing’s Breakup Is Not If, But How And When

Boeing’s notification Oct. 15 that it could raise up to $25 billion in fresh funds by selling stock or debt, as well as a new, second $10 billion credit line from major investment banks, can be read many ways.

But for sure it signals the beginning of the end of Boeing as we know it.

This is not to say that Boeing is going out of business and disappearing from the U.S. business landscape; far from it. That remains unlikely due to Boeing’s central roles as a key provider of national security capabilities and its manufacturing and exporting importance.

Rather, the latest announcement—taken in line with other developments such as a 10% workforce cut and management changes—underpin how the next Boeing probably will not be an aerospace and defense conglomerate. Think akin to how General Electric, which used to be the leading air transport lessor among other things, narrowed to being only the jet engine making and servicing GE Aerospace, or how Northrop Grumman abandoned naval shipbuilding or being a fighter jet prime contractor, or how Rolls-Royce exited advanced air mobility work.

Why can’t Boeing as we know it today just be made whole and get back on a path to profitability? How do we know the new fundraising indicates that the recovery and restructuring that new CEO Kelly Ortberg was hired to carry out will mean Boeing will look different in the end compared with the past 15-plus years? Two reasons: the size of the fundraising, and Ortberg’s volunteered comments.

First, the fundraising. The $25 billion shelf filing acts as a gross marker, letting investors know Boeing could sell stock or debt to raise that much. Boeing could raise less, and it has given itself three years to do so, allowing it to take advantage of better stock or debt market conditions in that time. Still, the $25 billion marker comes on top of $10 billion in new debt that was issued earlier in 2024, and when combined with the now-$20 billion in available, untapped credit lines, Boeing has laid out how it could access roughly $55 billion in funds in coming years without selling products or services.

Ostensibly, Boeing later could sell enough large commercial aircraft, military jets and spacecraft to pay off the debt, reward shareholders and even record a profit. But that $55 billion creates options and helps Boeing maintain its all-important investment-grade debt issuance rating in the meantime. That financial runway—almost as much as the total standing $58 billion debt, as of the second quarter—buys time to reshape Boeing’s business portfolio, and that leads to the second point here.

“We need to be clear-eyed about the work we face and realistic about the time it will take to achieve key milestones on the path to recovery,” Ortberg said Oct. 11 while announcing the layoffs and program cutbacks at Boeing Commercial Airplanes. “We also need to focus our resources on performing and innovating in the areas that are core to who we are, rather than spreading ourselves across too many efforts that can often result in underperformance and underinvestment.”

What is more, Boeing warned there would be $2 billion in new Boeing Defense, Space and Security (BDS) charges registered with its third-quarter results to be released Oct. 23. Ortberg in his Oct. 11 statement said he is now directly “providing additional oversight of this business and these programs.” Last month, BDS chief executive Ted Colbert left abruptly.

But as Scott Mikus of Melius Research notes, Boeing unveiled $4.4 billion of BDS charges ahead of its infamous November 2022 investor day, and that was supposed to be the proverbial “kitchen-sink” de-risking. But since then, Boeing has unveiled $5 billion more in BDS charges. “They continue to lose money at Boeing Defense,” Mikus says. “This is definitely a show-me story on when they can avoid additional charges.”

As if running the entire Boeing enterprise was not time-consuming enough, Ortberg is jumping directly into defense and space programs. As defense analyst Byron Callan of Capital Alpha Partners notes, this could set the scene for quicker changes. “How much of his time will this take, and if it’s a distraction from core commercial airliner issues, does this business need to be a part of Boeing’s future?”

We know that Boeing is serious about buying leading subcontractor Spirit AeroSystems, and that deal currently is supposed to close by mid-2025. Spirit has a modicum of defense work, but it is responsible for about three-quarters of Boeing’s cash-cow 737 program and has a piece of every large commercial aircraft the OEM mints. While practically no one in industry expects Boeing to reach and maintain a production rate of 50 new 737s a month within the next two years, that level remains the long-term target and is critical to Boeing converting its backlog into cashflow. To be succinct, large commercial aircraft, and especially narrowbodies, are the future of cash generation.

Meanwhile, Wall Street has been expecting Boeing to exit its half of United Launch Alliance, and analysts are now busy identifying other candidates that could be jettisoned. TD Cowen analysts suggest another near-term divestiture could be Jeppesen from Boeing’s KLX/Aviall build-up years ago.

What about divesting BDS as a whole? Many analysts and consultants see that as unlikely. For starters, the defense and space division obviously is full of enough money-losing fixed-price contracts to make it financially radioactive. Second, it is unlikely the U.S. executive branch would allow another large defense prime to buy it, considering monopoly concerns, while lawmakers could flinch at the prospect of a private equity buyer. Nevertheless, contracts can be sunsetted or sold off individually, and facilities shut down to achieve the same effect.

Regardless the path, Boeing’s breakup from its current conglomerate state is a safe bet. Perhaps someday it is cheered as a savior story much like how GE Aerospace and CEO Larry Culp Jr. are celebrated today. But as with that esteemed brand, the end result could be Boeing more in name only rather than the business model many people think of now.