Boeing got dealt another reputational blow on Friday, but not because of something one of its planes did. Instead it’s because the credit ratings agency Fitch announced that it was affirming the rating for plane maker’s long-term default risk but downgrading the outlook on that rating to “stable” from “positive.” A small change that speaks volumes.
The company is still dealing with the fallout from a January door plug blowout on a 737 Max 9 during an Alaska Airlines flight. Passengers are suing, and the Federal Aviation Administration and Justice Department are investigating what went wrong. And lots of surely unwanted attention is being directed to Boeing’s history of other safety scandals.
“The FAA recently completed a quality control audit of Boeing’s production processes following the January 2024 incident involving an Alaska Airlines flight,” Fitch said. “The investigation resulted in greater operational disruption and slower 737MAX production than Fitch previously anticipated during the first few months of 2024. Boeing has until late-May 2024 to develop a plan to address the various concerns and failures highlighted by the FAA, during which time Fitch believes Boeing will continue to operate at a slower production pace in line with early 2024 levels.”
Essentially: All these problems can’t help but make it harder for Fitch to pay its bills.
Currently, Fitch rates Boeing at “BBB-.” That’s still a so-called “investment-grade” higher-quality rating, but it’s the last stop before “BB,” which is a so-called “speculative grade” rating, or junk bond status. At that point, certain bond holders who are committed to only holding investment-grade debt, like pension funds or certain types of index funds, would be forced to sell. It would also shrink the available pool of capital that Boeing could tap should it need to borrow money in the future.
Wall Street doesn’t seem to be harboring any major doubts about Boeing’s ability to take care of its obligations. One set of notes due to be paid in 2026 are trading at 93 cents on the dollar.
Boeing stock was up about 1.5% in Friday afternoon trading, but it’s down almost 27% so far this year.