Boeing Isn't Junk Status — Yet: Moody's Outlook On Aircraft Maker Goes Negative

by

Boeing Co.'s (NYSE: BA) problems continue as Moody's Ratings downgraded the plane-maker's credit score.

What Happened: Moody's lowered the score on Boeing's unsecured debt to Baa3 from Baa2, according to a report published Wednesday. Ba2 is the lowest possible investment-grade rating.

The negative rating outlook concludes a review initiated on March 26. Moody's cited Boeing's failure to meet expected levels of free cash flow generation due to underperformance in its flagship commercial airplanes segment.

The agency highlighted that this underperformance will likely impact Boeing's ability to meet upcoming debt maturities in 2025 and 2026.

Why It Matters: Boeing brass likely saw this coming as they're currently reeling from a long list of quality-control issues.

  • Two tragic crashes weigh heavily on the aircraft company's public image as well as its stock price.
  • Documented issues with the 737's tail fittings, rivets and fasteners
  • And a door plug blowout on a 737-9
  • While a Baa3 rating from Moody's means Boeing is still considered "investment-grade," a lower rating would mean that it's a "speculative" play - so-called "junk" status.
Factors that could lead to further downgrade include continued poor performance in the commercial airplanes segment, recurring reliance on debt markets, insufficient growth in aircraft deliveries, weakened liquidity and lack of improvement in financial metrics.

Boeing isn't the only high-profile downgrade as of late.

Moody's on April 18 reduced its outlook for direct lending funds managed by major private equity firms - BlackRock Inc. (NYSE: BLK), KKR & Co. and Oaktree Capital Management - to negative from stable.

Before that, the firm cut New York Community Bancorp to Ba2 from Baa3.

Moody's also downgraded the entire U.S. in November, citing fiscal challenges.

What's Next: Boeing's liquidity is expected to remain sufficient, although Moody's predicts the company will likely issue new debt to bolster its cash position and manage its maturity profile through 2026.

Arlington, Virginia-based Boeing operates in three principal business segments, including its commercial airplanes unit. Revenue totaled $77.8 billion for 2023.

The company is reportedly selling certain defense assets and foresees slower 787 production due to supplier shortages.

BA Price Action: Boeing closed Wednesday at $164.33 a share, down 2.87%.