Fitch Ratings has affirmed the Boeing Company's (BA) Long-term Issuer Default Rating (IDR) at 'A' and Short-term IDR at 'F1'. Fitch also affirmed Boeing Capital Corporation's (BCC) Long-term IDR at 'A'. The Rating Outlook is Stable.
The ratings cover approximately $10.8 billion of debt ($7.7 billion attributable to BA and $3.1 billion attributable to Boeing Capital), up from approximately $10 billion at the end of 2016. Boeing issued $900 million of senior notes in February, which drove the higher debt level. Of the amount attributable to Boeing Capital, less than $1 billion consists of debt originally issued by BCC and subsequently guaranteed by BA, with the remainder consisting of intercompany loans from BA to Boeing Capital. Fitch's ratings incorporate expectations for higher debt in 2017 and subsequent years, and Fitch believes BA could end 2017 in a net debt position for the first time in six years.
Fitch expects Boeing's commercial aircraft deliveries will rebound to approximately 770 aircraft in 2017 and 820 aircraft in 2018. Several transitioning programs drove BA's 2016 deliveries down modestly to 748 aircraft. BA's commercial backlog at the end of March 2017 totalled 5,744 aircraft, reflecting the health of Boeing's commercial franchise. However, the backlog declined by 80 aircraft in 2016. This was the first backlog decline at BA in six years. Given some trends in the LCA market, Fitch expects orders could come in below deliveries again in 2017, lowering the backlog further. This is not a rating concern at this time given the large existing order book.
Most key commercial aviation indicators support Fitch's aircraft delivery outlook. However, there are several signs that the positive momentum in some demand indicators is slowing and a delivery peak is looming. Fitch expects aircraft orders and the order backlog to decline in 2017. Airline profits are likely to fall modestly in 2017, and passenger airline traffic growth could decelerate. Announced production rates show substantial delivery growth, and Fitch forecasts that deliveries could be approaching a level exceeding replacement needs and growth.