Big Boeing Customer Feeling Cash Pinch

Posted by: Justin Bachman on March 25

Shares of Boeing (BA) rose nearly 3% on March 25, despite two seemingly ugly bits of news. First, FedEx (FDX) said it may scrap an order for 30 of Boeing’s 777 freighter if Congress passes a rule allowing its workers to more easily unionize. This verbal scrap may all be posturing on Capitol Hill, and a 30-jet order isn’t likely to damage Boeing greatly in the long term. (After all, Turkish Airlines said just today it will take five new 777s, so customers remain.)

However, a second news item of the day appears to hold far more substance for Boeing’s long-term health. Its largest customer, International Lease Finance Corp. (ILFC) – part of the deeply troubled American International Group empire – is facing a cash crunch. In its annual report, filed March 25, ILFC said it would likely need to ask AIG (AIG) for additional funds. That money would be subject to approval of the New York Federal Reserve, which loaned AIG $85 billion in September. On March 12, the company borrowed $800 million from AIG to meet its payments, and will receive another $900 million on March 30 to cover April contract payments. “As of the date of this report, we are still unable to access the commercial paper and public debt markets and have borrowed the maximum amount under our senior revolving credit facilities,” ILFC said. The Los Angeles-based company also says its ability to continue as a “going concern” is in question.

ILFC owns 955 jets, and has contracts for 168 more from Boeing and Airbus through 2019. The unit is for sale as part of AIG’s divestiture plans. AIG spokesman David Monfried says the company is “in talks with a number of interested buyers” and expects an ILFC sale to happen in the next 12 months. Since the filing, the cost of insuring ILFC debt soared, with an upfront payment of $3.35 million for $10 million in debt, up from $2.7 million a day earlier, according to Reuters.