Moody’s downgrades Boeing ratings

Lilia
By Lilia December 18, 2019 11:55

Moody’s downgrades Boeing ratings

Moody’s Investors Service has downgraded its ratings of The Boeing Company, including the company’s senior unsecured and short-term debt, to A3 from A2 and to Prime-2 from Prime-1, respectively. Moody’s also downgraded the senior unsecured rating for Boeing Capital Corporation, the debt of which Boeing guarantees, to A3 from A2 and downgraded the senior unsecured rating on Boeing’s FLT Industrial Revenue Bonds Ser. 1999A to A3/VMIG 2 from A2/VMIG 1. The outlook for both entities was changed to stable from negative.

“The downgrades follow the extension of the grounding of the 737 MAX into 2020, the announced plan to shut down this important program for some interim period, and the uncertainty and elevated risk — both financial and operational — for Boeing and its broader supply chain over the ensuing period,” said Moody’s lead analyst, Jonathan Root.

Moody’s notes the regulatory uncertainty regarding when the 737 MAX will be allowed to return to service across the globe and the potential future regulatory burdens regarding certification of new-design and updated aircraft. The suspension of assembly of 737 MAXs for an unspecified timeframe that Boeing announced on December 16 will increase costs for the program, including ongoing financial support to many suppliers; and increase risk in the production system, currently, and in the ramp-up phase once assembly re-starts. The extended grounding will increase airlines’ and lessors’ claims for compensation. The program costs that will be accrued and realized pro-rata with future deliveries, and anticipated increases in compensation claims by airlines will lower the 737 program margins and cash generation for years to come. Moreover, Moody’s considers that Boeing’s reputation can be adversely affected as the grounding extends and from its governance mis-steps with broadening social considerations related therefrom, which could have a more lasting impact on the company’s business.

Lilia
By Lilia December 18, 2019 11:55