Boeing’s 737 Max halt affects credit

Boeing’s 737 Max halt affects credit
Copyright 2019 CNN

Boeing’s credit rating was trimmed by Moody’s and Standard & Poor’s, as the rating agencies said the aircraft maker’s move to halt 737 Max production comes with increased risks.

“Boeing’s plans to suspend production of the 737 MAX may save some cash in the near term, but it could introduce additional risk into the supply chain,” S&P said in its note, which cut the rating to A- from A. “The company stated it doesn’t plan to furlough any workers on the program and will likely have to support some suppliers, so the cash saved from stopping production could be modest.”

Moody’s, which cut its rating to A3 from A2 late Wednesday, said the production halt “will increase costs for the program, including ongoing financial support to many suppliers; and increase risk…in the ramp-up phase once assembly re-starts.”

“Moreover, Moody’s considers that Boeing’s reputation can be adversely affected as the grounding extends,” it said.

On Monday Boeing announced plans to halt production early next year due to uncertainty about when the FAA will allow the plane to fly again.

The jet has been grounded since March following two fatal crashes that killed 346 people. Boeing continued building the the 737 Max during the grounding, partly to protect its supplier base. That meant it continued to incur the cost of building 400 jets without being able to deliver them and get most of the cash that comes with an aircraft sale.

Boeing still has a strong balance sheet, and its reduced ratings are still strong and nowhere near junk bond status.

S&P did raise its “management and governance assessment” on Boeing to fair from satisfactory. In October, Boeing stripped CEO Dennis Muilenburg of his position as chairman.