Fitch affirms Boeing’s rating

Fitch Ratings has affirmed Boeing’s Long-term Issuer Default Rating (IDR) at 'A' and Short-term IDR at 'F1'. Fitch has also affirmed Boeing Capital Corporation's (BCC) Long-term IDR at 'A'. The Rating Outlook is Stable.

Fitch states that credit risks from M&A activity have been rising as a result of potential strategic transactions, as illustrated by the pending KLX acquisition and BA's ongoing discussions with Embraer. These M&A risks are mitigated by BA's substantial cash generation (estimated post-dividend FCF of $8.0-9 billion annually), sizable liquidity position, and low leverage for the current rating. Fitch calculates BA's current leverage (adjusted debt to EBITDAR) at approximately 1.0x, at least a half turn below the mid-point for 'A' category aerospace & defense companies. At the current ratings, Fitch believes BA has several billion dollars of excess liquidity, and it also has several billion dollars of debt capacity.

Boeing’s ratings reflect its strategic positions in the commercial aerospace and defense sectors, high barriers to entry in its key businesses, strong liquidity position, cash generation, and large backlog ($486 billion). The ratings are also supported by the company's demonstrated ability to withstand challenging periods such as the post-9/11 downturn, the most recent economic recession, and the 787/747-8 development delays. Financial flexibility is another rating strength.

Concerns include M&A activity; the potential for delays and cost overruns on development programs; regular and substantial charges; the aging of parts of Boeing's defense portfolio; some remaining uncertainty about the ultimate profitability of the 787 program; the size of the company's pension deficit on a GAAP basis ($16.4 billion); and the susceptibility of the commercial aerospace industry to shocks such as terrorism and disease.

Margin levels remain low for the rating category, but BA has made progress addressing this in the past two years. Also, the company's portfolio is less balanced than it once was, as commercial growth has reduced the weight of defense revenues as a percentage of consolidated revenues. Growth of the company's services offerings could improve BA's balance, diversification, and margins. The intense competitiveness of the commercial airplane industry is also a rating consideration.