Boeing Co.’s credit rating is at risk as the grounding of the 737 Max drags into a fifth month, Fitch Ratings said.
Uncertainty around the return to service of Boeing’s best-selling jet and the “growing logistical challenge” of getting parked planes back in the air threaten the company’s credit, Fitch Ratings said in a statement Monday. Fitch affirmed Boeing’s A rating while cutting the outlook to negative, the first credit warning after the grounding, which was prompted by two deadly crashes.
In the longer term, the Max’s grounding presents a significant public-relations challenge that will remain a risk for “Boeing’s reputation and brand” into next year and beyond, Fitch said. There’s also a danger that the company will have to make costlier concessions to airlines, Fitch said. Boeing last week disclosed a $4.9 billion after-tax charge to cover potential consideration for customers who have been forced to cancel flights.
“Fitch also expects there will be a lingering operating-margin impact for several years after the 737 Max returns to service,” the ratings company said. Fitch’s rating on Boeing is the sixth-highest investment-grade level.
Boeing’s bonds were unchanged after Fitch’s report. The cost to protect its debt against default for five years rose 2.2 basis points, according to data provider CMA.
The company’s benchmark 10-year bond has traded higher since the March 10 crash of the Ethiopian Airlines jet, the second Max accident in a five-month span. The notes were last quoted at 103 cents on the dollar, according to Trace. Boeing was able to sell $3.5 billion of new debt in April, boosting the size of the transaction amid strong demand.
The shares fell 1% to $373.70 at 1:04 p.m. in New York.
Boeing is rated A2 by Moody’s Investors Service and an equivalent A from S&P Global Ratings, the sixth-highest investment-grade rating. Both carry stable outlooks.
S&P said last week that Boeing’s announcement that it will be taking a $5.6 billion pretax charge to compensate for the grounding of the 737 Max wouldn’t affect the company’s credit ratings. But S&P warned that more damaging effects to Boeing’s finances or a “substantial loss” in market share to the 737 could warrant a downgrade.
By Brendan Case and Molly Smith