S&P Cuts Boeing's Ratings Outlook to Negative — Update
By Dean Seal
S&P Global Ratings has cut Boeing's ratings outlook to negative from stable, citing heightened production uncertainty, leadership changes and its negotiations for an acquisition of Spirit AeroSystems.
The ratings agency said on Thursday that if Boeing lands the Spirit acquisition that it's currently in talks for, it would take on Spirit's higher-priced debt, its overall debt levels would rise and it would receive only a limited earnings contribution from the acquired company.
The current debt amount being contemplated by the deal includes about $4 billion for the purchase and another $4 billion in assumed Spirit debt, which would be piled on amid constrained cash flow generation, S&P said.
"We believe the acquisition would introduce additional potential headwinds for Boeing on its path to cash flow and leverage recovery," the agency said.
S&P also took a shot at what it calls persistent quality shortcomings at Boeing that could risk delaying a recovery of its credit measures. Boeing is currently implementing significant changes to its manufacturing processes after a door plug blew off a Boeing-made plane on an Alaska Airlines flight earlier this year, prompting a mass grounding and concerns about the safety of Boeing's 737 MAX 9 planes.
The Federal Aviation Administration has capped Boeing's 737 MAX production to 38 planes a month while it reviews the incident, though S&P doesn't expect production to approach 38 a month until the end of this year.
The agency added that uncertainty around Boeing's leadership is pressuring its rating. The company has announced plans to replace its chief executive, chairman and the head of its commercial aircraft division.
Moody's Investors Service has also cut the rating on Boeing's unsecured debt by one level to Baa3, its lowest investment-grade rating. The agency said on Wednesday evening that Boeing's cash-flow pressures are expected to persist through 2026 and that it expects the company to issue new debt, particularly if it reaches a deal to buy Spirit.
Brian West, Boeing's chief financial officer, said during an earnings call on Wednesday that Boeing is prioritizing its investment grade rating and working closely with rating agencies. The company's shares hit a new 52-week low of $159.70 in trading on Thursday.
Write to Dean Seal at dean.seal@wsj.com
(END) Dow Jones Newswires
April 25, 2024 12:53 ET (16:53 GMT)
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