Fitch: Boeing's Credit Rating Could Be Cut

The 737 Max has been a nightmare for Boeing Co (NYSE: BA) and its investors, and the plane may soon cost the company its credit rating.

On Monday, ratings agency Fitch said the 737 Max leaves Boeing with very little wiggle room to maintain its A credit rating in the near-term.

Fitch has a “negative” credit outlook for Boeing. The company announced a $4.9-billion charge related to the 737 Max earlier this month.

“Fitch recently revised BA's Outlook to Negative based on regulatory uncertainty regarding the timing and global sequencing of the 737 MAX's return-to-service (RTS), the growing logistical challenge of returning parked planes to service and delivering stored post-production aircraft, the substantial financing needed for temporary working capital build-up, and the risk of higher concessions to airlines, especially if the 737 MAX grounding extends into the end-of-year holiday season,” Fitch said in a press release. 

The agency said the $4.9-billion charge was already factored into its forecasts and is not the cause of its negative outlook.

Long-Term Impact

Fitch has issued an A rating for Boeing’s recently proposed $5.5-billion issuance of senior secured debt to help fund its commercial joint venture with Embraer SA (NYSE: ERJ).

Boeing's consolidated debt could rise by nearly $10 billion this year to almost $24 billion; that debt level should begin to decrease once 737 Max deliveries resume, according to Fitch. 

Fitch said it will be closely monitoring the potential damage the 737 Max has done to Boeing’s brand value and how much of an impact that damage will have on the manufacturer's underlying business.

Other long-term 737 Max risks include several years of depressed operating margins and unknown costs from litigation and regulators, the ratings agency said. 

Boeing shares were down 1.4% at $340.16 at the time of publication Monday. 

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Photo by Steve Lynes via Wikimedia.