Rating Action:
Moody's downgrades Boeing's senior unsecured rating to Baa1; keeps review open on uncertain timing of MAX's return to service
30 Jan 2020
New York, January 30, 2020 -- Moody's Investors Service, Inc. ("Moody's") downgraded its senior unsecured debt ratings for The Boeing Company and of subsidiary, Boeing Capital Corporation, to Baa1 from A3. These ratings remain on review for downgrade. Moody's also affirmed the Prime-2 short-term rating, which is not on review.
"Boeing's Q4 earnings indicate significantly higher cash burn in 2020 than previously anticipated, increasing reliance on debt for funding the impact of a lower-for-longer recovery of the MAX program," said Moody's Senior Vice President and lead analyst, Jonathan Root. "We now anticipate that the road to restoring the MAX production system and Boeing's credit profile will run into 2023 and will be much costlier given significant negative free cash flow near $10 billion in 2020, even if the FAA ungrounds the aircraft by mid-spring," said Root.
The downgrade to Baa1 considers Moody's updated projections in which funded debt increases by upwards of $14 billion in 2020 because of negative free cash flow of about $10 billion, including about $4.6 billion for annual dividends. Moody's assumes Boeing will also complete the $4+ billion investment in Embraer's commercial aircraft business in 2020. Moody's previously expected about $3 billion of positive free cash flow in 2020, prior to the company's earnings release. It now anticipates that free cash flow will inflect positively in 2021, to about $4 billion, all of which will be used to reduce debt. The downgrade also reflects what Moody's views as an aggressive financial policy, evidenced by the board's decision to hold the dividend in lieu of organically preserving liquidity and an otherwise stronger balance sheet. Based on Moody's projections, about $12 billion, or almost half of the roughly $27 billion increase in debt Moody's projects between the end of 2018 and the end of 2020, will have funded returns to shareholders.
The review for downgrade mainly reflects the ongoing uncertainty of when the US Federal Aviation Administration ("FAA") will unground the MAX and the potential financial impact of various associated risks, including MAX delivery and production rates, supply chain health, integrity of the order book, customer compensation and financial policy.
