Boeing shares turn lower as Moody’s places ratings on review for downgrade
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Boeing (NYSE:BA) -4.2% in Friday’s trading, quickly tumbling to lows of the day after showing just modest losses earlier, after Moody’s said it placed all of Boeing’s ratings on review for downgrade, including the Baa3 senior unsecured rating and P-3 commercial paper rating, in the wake of the strike announcement by the company’s aircraft mechanics and assemblers.
Moody’s says it could downgrade Boeing (BA) if the IAM strike is prolonged, leading to material reduction in liquidity after considering proceeds from any capital raising the company may undertake, or if Boeing needs to issue debt alongside any equity raised to meet its liquidity requirements including the retirement of the ~$12B of debt maturities up to year-end 2026.
A prolonged strike would fracture the early-stage recovery of Boeing’s (BA) Commercial Airplanes business, Moody’s says, noting IAM members’ 57-day strike in 2008 cost the company ~$1.5B/month or $50M/day at a time when 737 production was at its then normal production rate of ~34/month; the ratings agency believes production of the 737 MAX narrowbody increased to nearly 30/month for July and August, compared to the Federal Aviation Administration’s current 737 production cap of 38/month.
Also, Fitch Ratings says Boeing’s (BA) investment grade credit rating has “limited headroom for a strike,” as an extended strike could have a meaningful operational and financial impact, increasing the risk of a downgrade.
Although the current labor negotiations create near-term uncertainty, Fitch believes Boeing (BA) management understands the importance of reaching a timely agreement that supports the maintenance of its current investment-grade ratings.
Meanwhile, Boeing (BA) CFO Brian West said the company is ready to get back to the negotiating table, a sign that it could be prepared to sweeten the labor deal.
The strike will “jeopardize our recovery,” West also said, adding the company is now conserving as much cash as possible.