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S&P Global Ratings Revises Boeing’s Outlook
S&P Global Ratings recently adjusted Boeing’s outlook to “negative” from “stable,” following Moody’s Ratings decision to downgrade its rating outlook to negative the day before. This change comes amidst heightened production uncertainty related to quality issues impacting Boeing’s 737 Max aircraft, along with impending leadership adjustments.
Production Challenges and Leadership Changes
Boeing’s CEO, David Calhoun, announced his plans to step down by the end of 2024, signaling a shift in the company’s leadership. Despite affirming Boeing’s long- and short-term issuer credit ratings at “BBB-” and “A-3” respectively, S&P cautioned that Boeing’s competitive position could be at risk if manufacturing quality does not improve.
The Virginia-based aircraft manufacturer faced disruptions in deliveries after a door plug malfunctioned on a 737 Max plane in January, leading to safety inspections and grounded flights. As a result, Boeing’s commercial plane deliveries are expected to remain below 350 by the end of the year, with only 83 planes delivered in the first quarter of 2024.
Moreover, Boeing’s production forecast for its 787 Dreamliner planes is slower due to supply shortages of essential components, as communicated to employees in a recent memo from the division’s vice president and general manager.
Financial Challenges and Ratings Downgrade
Moody’s also downgraded Boeing’s unsecured debt rating to Baa3 from Baa2, teetering on the edge of “junk” status due to unsatisfactory performance in the commercial planes division. The agency anticipates ongoing challenges in this segment until at least 2026, projecting a shortfall in annual free cash flow to cover the substantial debt obligations of over $12 billion in the next two years.
Boeing’s first-quarter cash usage amounted to $3.9 billion, with expectations of continued high cash outflow in the second quarter. Despite a reduced loss of $355 million compared to the previous year, Boeing aims to achieve $10 billion in free cash flow by 2025/2026, contingent upon the progress of the 737 and 787 production ramp-ups.
While acknowledging that low Max production and deliveries will constrain cash flow in the near term, S&P maintains a positive outlook for Boeing, anticipating the company to generate positive free cash flow in 2024.
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