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18 Dec 2019
New York, December 18, 2019 -- Moody's Investors Service ("Moody's") downgraded its
ratings of The Boeing Company, including the company's senior
unsecured and short-term debt, to A3 from A2 and to Prime-2
from Prime-1, respectively. Moody's also downgraded
the senior unsecured rating for Boeing Capital Corporation, the
debt of which Boeing guarantees, to A3 from A2 and downgraded the
senior unsecured rating on Boeing's FLT Industrial Revenue Bonds
Ser. 1999A to A3/VMIG 2 from A2/VMIG 1. The outlook for
both entities was changed to stable from negative.
"The downgrades follow the extension of the grounding of the 737 MAX into
2020, the announced plan to shut down this important program for
some interim period, and the uncertainty and elevated risk --
both financial and operational -- for Boeing and its broader supply
chain over the ensuing period,," said Moody's
lead analyst, Jonathan Root.
Moody's notes the regulatory uncertainty regarding when the 737
MAX will be allowed to return to service across the globe and the potential
future regulatory burdens regarding certification of new-design
and updated aircraft. The suspension of assembly of 737 MAXes for
an unspecified timeframe that Boeing announced on December 16 will increase
costs for the program, including ongoing financial support to many
suppliers; and increase risk in the production system, currently,
and in the ramp-up phase once assembly re-starts.
The extended grounding will increase airlines' and lessors'
claims for compensation. The program costs that will be accrued
and realized pro-rata with future deliveries, and anticipated
increases in compensation claims by airlines will lower the 737 program
margins and cash generation for years to come. Moreover,
Moody's considers that Boeing's reputation can be adversely
affected as the grounding extends and from its governance mis-steps
with broadening social considerations related therefrom, which could
have a more lasting impact on the company's business.
RATINGS RATIONALE
The A3 senior unsecured rating broadly reflects Boeing's position as one
of two manufacturers of large commercial airplanes and a prime US defense
contractor. The diversification of the defense and services businesses
helps mitigate increasing financial and operational risk within the company's
commercial aircraft operations.
The stable outlook reflects the company's strong liquidity and financial
flexibility which, together with stability in the defense business
and ongoing growth in services, mitigates the impact while the MAX
remains grounded. The stable outlook also reflects that Boeing's
historically aggressive financial policy will remain tempered, with
no share repurchases until after a sustained recovery following the ungrounding
of the MAX.
There will be no upwards pressure on the ratings until after the MAX program
returns to normal, the inventory of aircraft is depleted,
and the effects of the grounding on the financial profile have been reversed,
including the repayment of commercial paper and other debt used to fund
the MAX disruption. Improvements in key credit metrics that could
lead to a ratings upgrade include debt-to-EBITDA moving
below 2.5x and retained cash flow-to-net debt above
40% while EBIT-to-interest approaches 10x.
A downgrade of the ratings could occur if the grounding runs into the
second-half of 2020, particularly if aviation authorities
identify some other component of the MAX's flight management system that
requires updating. Assuming the MAX is re-certified,
other factors that could lead to a downgrade include share repurchases
that occur before credit metrics are restored to near pre-grounding
levels or repeatedly exceed free cash flow, significant cancellations
of MAX orders, or other mis-steps in key aircraft or defense
programs that require significant charges. Expectations of sustaining
unrestricted cash net of issued commercial paper below $4 billion,
retained cash flow to net debt below 25%, EBIT to interest
expense below 6x, EBITA to average assets below 8%,
and/or debt to EBITDA above 2.5x could also lead to a negative
rating action.
The principal methodology used in these ratings was Aerospace and Defense
Industry published in March 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The Boeing Company, headquartered in Chicago, Illinois,
is a leading large commercial airplane manufacturer and one of the largest
prime contractors for aircraft and related systems to the US Department
of Defense. The company operates in three principal business segments:
Commercial Airplanes; Defense, Space & Security; and
Global Services. Boeing reported $87 billion of revenue
for the twelve months ended September 2019, including a reduction
of about $5 billion for the customer compensation charge it booked
in the second quarter, down from $97.5 billion for
the same period ending September 2018.
The following rating actions were taken:
Downgrades:
..Issuer: Boeing Capital Corporation
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A2
..Issuer: Boeing Company (The)
....Senior Unsecured Shelf, Downgraded
to (P)A3 from (P)A2
....Senior Unsecured Commercial Paper,
Downgraded to P-2 from P-1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A2
....Miami-Dade County Industrial Development
Auth, Adjustable Mode Airport Facility Revenue Bonds, Series1999A,
Downgraded to A3, VMIG2, from A2, VMIG1
Outlook Actions:
..Issuer: Boeing Capital Corporation
....Outlook, Changed To Stable From
Negative
..Issuer: Boeing Company (The)
....Outlook, Changed To Stable From
Negative
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jonathan Root, CFA
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Russell Solomon
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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