Moody’s places Boeing on review for downgrade amid 737 delivery doubt

Rating agency Moody’s has placed Boeing’s Baa2 senior unsecured rating and Prime-2 short-term rating on review for downgrade following ongoing issues impacting the American manufacturer. The Baa2 backed long-term revenue bond and VMIG 2 backed short-term revenue bond, previously rated as stable, are also placed on review for downgrade. ‘Placing the review on downgrade follows Moody’s belief that Boeing will be unable to deliver 737 narrow-body aircraft at the volumes required for it to materially expand tis free cash flow and retire debt in a reasonable timeframe,’ explains Moody’s. Boeing has held its Baa2 senior unsecured rating since April 2022. The agency expects Boeing’s free cash flow for the entire of 2024 to stand at around $1 bn, with the aftermath of the Alaska Airlines incident and investments into 737 production practices to result in $4.5bn of negative free cash flow in the first quarter. Boeing reported 42 737 deliveries across January and February of 2024, well below the FAA rate cap of 38 a month; meaning the manufacturer will need to average 36 deliveries a month for the remainder of the year – something Moody’s believes ‘will be difficult to achieve’ while ‘operating production lines with a no defects/no traveled work policy’. Although Moody’s notes that ‘the duopoly in large commercial aircraft manufacturing, diversification benefits of the defense and services segments and the importance of Boeing to the US Department of Defense as a prime contractor will continue to support the strong business profile,’ a downgrade rating of ‘no more than one notch’ may be on the table. The potential for an acquisition of Spirit AeroSystems may also be announced while the ratings review is ongoing. Moody’s concludes it will ‘assess the prospects and timeframe for Boeing to sustain annual free cash flow at levels that will allow it to comfortably retire debt maturities in upcoming years’ (which currently stand at $4.3bn in 2025 and approximately $8bn in 2026). It will also consider ‘projections of Boeing’s liquidity relative to these upcoming significant debt maturities’.