S&P Global Ratings revised its outlook on Boeing to “negative” from “stable” on Thursday — just one day after Moody’s Ratings downgraded its rating outlook to negative for the struggling aerospace giant.
S&P noted “heightened production uncertainty, notably related to quality issues affecting its 737 Max aircraft, and key changes to its leadership are pending.” Boeing CEO David Calhoun announced last month that he will be stepping down by the end of 2024.
The ratings agency affirmed its “BBB-” long- and “A-3” short-term issuer credit ratings on the company. But it warned that Boeing “risks losing its competitive position if it fails to improve its manufacturing quality.”
The Virginia-based aircraft manufacturer took a hit to deliveries after a door plug blew out on one of its 737 Max planes mid-flight in January, causing the aircraft to be grounded as regulators inspected the planes for safety concerns. At the current pace of production, Boeing is not expected to break 350 commercial plane deliveries by December. In the first quarter of 2024, Boeing delivered just 83 planes.
Boeing is also projecting a slower increase in production of its 787 Dreamliner planes due to supply shortages of a “a few key parts,” the vice president and general manager of the division told employees in a memo on Monday.
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Moody’s also lowered the score on Boeing’s unsecured debt to Baa3 from Baa2 — bringing it just one step above “junk” status. The ratings downgrade reflects “inadequate performance” of Boeing’s commercial planes division, Moody’s Jonathan Root wrote in the note.
Moody’s anticipates that challenges facing the commercial planes segment will last at least through 2026, and that its annual free cash flow won’t be enough to cover the more than $12 billion of debt the company has coming due over the next two years. As a result, the ratings firm expects that Boeing will issue new debt to make up the difference.
Boeing used up $3.9 billion in the first quarter, and CFO Brian West said in a call with analysts that the second quarter will also see “another sizable use of cash.” Boeing posted a loss of $355 million in the first quarter, an improvement from a loss of $425 million a year earlier.
“Longer term, we remain confident in our ability to achieve $10 billion of free cash flow,” West said. “However, given our continued focus on safety, quality and stability, we continue to expect that this goal will take us longer than we originally planned and later in the 2025/2026 window, primarily tied to the 737 and 787 production delivery ramps of 50 per month and 10 per month, respectively.”
S&P said that while cash flow will be constrained this year by low Max production and deliveries, the agency continues to assume Boeing will generate positive free cash flow in 2024.