Boeing Cut as S&P Joins Moody’s With Downgrade Amid Max Crisis
Boeing plans to halt production next month of the 737 Max, which has been grounded since March.
(Bloomberg) -- Boeing Co. has been downgraded by S&P Global Ratings and Moody’s Investors Service as the grounding of the 737 Max plane extends into next year, jeopardizing the company’s financial future.
S&P followed Moody’s lead Thursday morning with a one-notch cut to A-, four levels above speculative grade amid uncertainty around when the company’s best-selling aircraft will return to service, analyst Christopher Denicolo said in a report. The production halt brings risks to the company’s supply chain and potential long-term impact to Boeing’s competitive edge, Denicolo said.
Moody’s noted the same concerns in a Wednesday note where the ratings firm downgraded the company one level to A3. Analyst Jonathan Root wrote that the suspension will increase Boeing’s program costs as well as airlines’ and lessors’ claims for compensation, not to mention present a potentially more lasting reputational risk, Root said.
Boeing shares pared gains after the S&P downgrade, climbing 0.3% to $331.75 at 9:56 a.m. in New York. Boeing’s bonds were unchanged. The company has about $26 billion of debt outstanding.
Boeing plans to halt production next month of the 737 Max, which has been grounded since March following two deadly crashes that killed 346 people. Almost 400 newly built jets are languishing in storage, and the timing of regulatory approval for the Max’s return remains uncertain.
The Chicago-based planemaker said the indefinite shutdown of its 737 factory in the Seattle area was the least disruptive option for the health of its production system and supply chain. But the decision adds to the uncertainty around the future of Boeing’s plane.
A further downgrade could occur if the grounding runs into the second half of 2020, Moody’s said.
Boeing has been burning cash since the grounding, going through $2.89 billion in free cash in the third quarter after consuming $1 billion in the second. The company had $9.76 billion in cash and equivalents as of Sept. 30.
To contact the reporters on this story: Molly Smith in New York at msmith604@bloomberg.net;Elizabeth Rembert in New York at erembert@bloomberg.net
To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Brendan Case
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