Days after Boeing announced a production halt of the 737 MAX, the three major U.S. credit rating agencies have turned slightly negative on the manufacturer with new outlooks that stress growing demands on the company’s credit access and softening cash prospects.
But the agencies continue to believe Boeing has the financial wherewithal to weather the MAX crisis, and continued suspension of its share buybacks into 2021 could be the only major immediate consequence.
“Fitch believes Boeing’s credit profile can support the current MAX stresses due to substantial liquidity, financial flexibility, access to the capital markets and revenue diversification,” the credit rating agency reported Dec. 17. “Aside from the MAX, Boeing’s products and markets are healthy.”
Fitch gave Boeing “a strong credit profile” and “A” rating before the MAX grounding, and the agency reaffirmed that Dec. 17. By the next day, Moody’s Investors Service and S&P Global Ratings both had downgraded Boeing in their rating scales, but by degrees.
Moody’s downgraded long-term debt to “A3 from A2” and short-term corporate debt, called commercial paper, to “Prime-2 from Prime-1. S&P downgraded the two debt classes to “A- from A” and to “A-2 from A-1.”
In other words, according to the firms’ individual rating definitions, Boeing continues to have “strong” financing capability. Fitch said its outlook was “negative,” while Moody’s said “stable” and S&P said “developing.”
Fitch surmised Boeing will continue to suspend shareholder buybacks, possibly into the second half of 2021. Moody’s said simply that it saw no share repurchases until after a sustained recovery following the ungrounding of the MAX.
All agencies foresaw the possibility for Boeing to take out more debt. Fitch expects Boeing’s debt will nearly double in 2019 to around $27 billion as a result of $10.5 billion of long-term debt issuance and several billion dollars of shorter-term commercial debt issuance, called “paper.” Debt will likely continue to rise and peak in the first quarter of 2020. But later in 2020 and in 2021, Fitch expects Boeing will pay down debt, especially its higher-interest commercial paper.
Besides paying for inventory of more than 400 MAXs built since the FAA grounded the type in March 2019, Boeing could opt to provide financial assistance to suppliers, especially smaller and financially weaker providers, the agencies noted.
S&P said it expects the ratio of funds from operations to debt to decline to 10%-15% for 2019 from 72% in 2018, then potentially improve to 55%-65% in 2020 if Boeing resumes MAX deliveries and production by April 2020.
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