Boeing’s 737 Max Crisis Puts Credit Ratings at Risk of Downgrade
(Bloomberg) -- Boeing Co.’s credit rating is at risk as the grounding of the company’s 737 Max jetliner drags into a fifth month, with Moody’s Investors Service joining Fitch Ratings in sounding a warning.
The planemaker faces a $5 billion cash-flow drain this year as it continues to churn out aircraft it can’t deliver until regulators around the globe clear the Max to resume commercial flights, Moody’s said in a statement Monday. Like Fitch, Moody’s affirmed Boeing’s rating at the sixth-highest level of investment quality while cutting the outlook to negative.
“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.
The grounding of Boeing’s best-selling jet will clip operating margins for years to come, while posing a significant public-relations challenge that will linger into next year and beyond, Fitch said earlier in the day. Uncertainty around the return to service of the Max and the “growing logistical challenge” of getting parked planes back in the air threaten Boeing’s credit, Fitch said. There’s also a risk that the company will have to make costlier concessions to airlines.
Boeing’s bonds were unchanged after the Fitch and Moody’s reports. The cost to protect its debt against default for five years rose 1.6 basis points, according to data provider CMA.
The manufacturer’s benchmark 10-year bond has traded higher since the March 10 crash of an Ethiopian Airlines jet, the second Max accident in a five-month span. The notes were last quoted at 103 cents on the dollar, according to Trace. Boeing was able to sell $3.5 billion of new debt in April, boosting the size of the transaction amid strong demand.
The shares fell 1% to $373.42 at the close in New York.
Regulators around the world banned the Max from flying in March after the Ethiopia crash. A total of 346 people died in the two accidents.
Boeing last week disclosed a $4.9 billion after-tax charge to cover potential consideration for Max customers forced to cancel thousands of flights or line up replacement aircraft.
S&P Global Ratings said last week that the charge, which is $5.6 billion on a pretax basis, wouldn’t affect Boeing’s credit ratings. But S&P warned that more damaging effects to the company’s finances or a “substantial loss” in market share to the 737 could warrant a downgrade.
Like S&P, Fitch rates Boeing as an A. Moody’s grades it at an equivalent level of A2.
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