Financial Performance

Moody’s, Fitch Downgrade Boeing Credit Outlook

The ratings agencies lowered Boeing's outlook to negative due to concerns over the financial fallout from the grounding of the 737 MAX planes.
Matthew HellerJuly 23, 2019
Moody’s, Fitch Downgrade Boeing Credit Outlook

In the latest financial fallout from the grounding of Boeing’s 737 MAX planes, two of the three credit ratings agencies downgraded the company’s credit outlook.

Both Moody’s Investors Service and Fitch Ratings affirmed Boeing’s current ratings at A2 and A/F1, respectively. But they lowered their outlooks from stable to negative, citing concerns over the grounding of the 737 Max and uncertainty over when the planes will return to service.

The downgrades followed Boeing’s announcement last week that it will take a $4.9 billion charge on the grounded planes.

The change in outlook “principally reflects that the grounding of the company’s 737 MAX aircraft will run longer than we had expected, which will compound its operational disruption, costs, and the size of the investment in working capital as production remains at a substantial rate of 42 per month,” Jonathan Root, a senior vice president at Moody’s, said in a news release.

“A downgrade of the ratings could occur if it becomes apparent that the grounding will extend into 2020 and Boeing does not reduce the production rate to conserve working capital,” Moody’s warned.

The company said last week there could be “additional financial impact” if the grounding lasts beyond the fourth quarter of this year.

Fitch noted that Boeing faces “the growing logistical challenge of returning parked planes to service and delivering stored post-production aircraft” and the risk of higher concessions to airlines, especially if the grounding extends into the end-of-year holiday season.

“The MAX situation also presents significant public relations challenges, and the impact on Boeing’s reputation and brand will be a watch item for the next year or more,” Fitch added.

The U.S. Federal Aviation Administration has yet to say when it will allow the planes to fly again and has not yet approved a software fix Boeing has made to the anti-stall system implicated in the two crashes that forced the 737 MAX grounding.

“Financial risk relative to the company’s pre-grounding profile has meaningfully increased, and the resolution and ultimate impact for Boeing, both financially and reputationally, remain unknown,” Moody’s said.

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