Boeing Faces Credit Crisis: Major Agencies Pessimistic After Q1 Results

Fitch Ratings has joined S&P and Moody’s in giving Boeing a negative outlook, indicating major credit graders' pessimism towards the aerospace giant. This decision follows Boeing's Q1 financial results, which showed a $3.9 billion cash burn and expectations of further sizable cash usage. The company faces "heightened execution risks" and may resort to new debt to address 2025 cash-flow challenges. Boeing's production issues have affected airlines' growth and capacity, potentially leading to higher fares. Despite this, Boeing's CFO, Brian West, insists that Boeing can protect its investment-grade rating and still has access to $10 billion in credit lines.

Key Takeaways

• Fitch Ratings downgraded Boeing's outlook to negative, following S&P and Moody’s.
• Boeing had a $3.9 billion cash burn in Q1, with more expected in Q2.
• Boeing faces "heightened execution risks" and may issue new debt.
• Stability may return if Boeing delivers 100+ 737 Max and half of its 787 Dreamliners from inventory by early 2023.
• Government support for Boeing is being considered due to its strategic importance.
• Boeing's production issues affect airlines' growth plans, potentially leading to fare increases.
• Boeing CFO Brian West plans to protect the company’s investment-grade rating and ensure access to cash.

Analysis

The downgrade of Boeing's outlook by Fitch Ratings, following S&P and Moody's, reflects the aerospace giant's significant cash burn and uncertain cash flow. This development may constrain Boeing's access to capital, increase borrowing costs, and negatively impact suppliers, shareholders, and the US economy. In the short term, Boeing's production challenges might lead to airline capacity constraints and higher ticket prices. However, Boeing's recovery could begin in early 2023 if it delivers over 100 737 Max and half of its 787 Dreamliners from inventory. Government support for Boeing, considering its strategic importance, might alleviate some financial pressures. Ultimately, investors and stakeholders must closely monitor Boeing's execution risks and its ability to protect its investment-grade rating and access cash.

Did You Know?

• Fitch Ratings downgraded Boeing's outlook to negative: This indicates that Fitch Ratings has lowered its opinion of Boeing's near-term creditworthiness. A negative outlook suggests that a credit rating downgrade could occur in the future if Boeing's financial situation does not improve.
• $3.9 billion cash burn in Q1: Cash burn refers to the amount of cash a company spends in excess of its revenues during a specific period. Boeing's $3.9 billion cash burn in Q1 indicates that it faced significant financial challenges and spent more cash than it generated, which is a cause for concern.
• Boeing faces "heightened execution risks": Execution risks are factors that can prevent a company from achieving its strategic goals or business objectives. In Boeing's case, these risks might include production delays, supply chain disruptions, or difficulties in meeting customer demands, which could negatively impact its cash flow and financial stability.
• Potential government support for Boeing: Government support may be considered due to Boeing's strategic importance. This means that Boeing plays a crucial role in the nation's economy, employment, or technological development. The government might provide financial assistance or other forms of support to help Boeing navigate its current challenges and maintain its position in the aerospace industry.