Fitch Ratings has assigned ‘BBB’ ratings to Boeing’s proposed issuance of senior unsecured notes. The notes will be issued in multiple parts with maturities ranging from 2022 to 2060. Proceeds will be used for general corporate purposes, which Fitch expects will include paying down commercial paper balances and debt maturities.
On March 24, Fitch downgraded BA’s long-term ratings and the long-term ratings for Boeing Capital Corporation (BCC) to ‘BBB’ from ‘A-‘ and removed the ratings from Rating Watch Negative. The actions reflected the rapid escalation of the coronavirus pandemic and the effect it is having on Boeing’s aviation markets and operations. The Rating Outlook is Negative.
Fitch’s rating case includes expectations for a significant global economic downturn with a gradual recovery into 2021 and 2022. This scenario will dramatically affect airline traffic and financial results, driving requests for delivery deferrals and lower maintenance expenditures. Fitch does not expect global aviation markets to return to 2019 levels until 2022, and in some cases 2023. Under this scenario, BA’s financial metrics will be very weak for the current rating in 2020, but the company has sufficient liquidity, including today’s bond issuance, to withstand the downturn. Fitch expects Boeing will be able to rebuild its credit metrics, already weakened by the 737 MAX grounding, to levels consistent with a ‘BBB’ category rating by the end of 2021 or early 2022.
The Negative Rating Outlook is driven by the risk of a more extended coronavirus pandemic, the ongoing risks related to the timing of the return-to-commercial service (RTCS) of the 737 MAX, and the pace of the 737 MAX delivery ramp up after the grounding is lifted. In the case of a second wave of infections or a prolonged coronavirus impact, including extended shut-downs of Boeing’s key facilities or material delays on the 737 MAX RTCS, Fitch’s expects Boeing could need access to additional capital, which could further pressure BA’s credit profile.
Factors related to coronavirus, including the duration and severity of the pandemic, will remain key concerns for BA’s ratings. These factors include the continued impact on Boeing’s commercial services business from lower airline traffic; the potential for increased requests for commercial airplane delivery deferrals; the ramifications for global GDP, which is a key driver of air traffic trends; and the direct impact on Boeing’s operations, particularly in the Seattle area. Another key concern is whether the coronavirus prolongs the 737 MAX grounding.
The ratings are supported by Boeing’s competitive positions in its main businesses. In addition, the ratings incorporate expectations that BA has the potential to strengthen its credit profile via cash generation and debt reduction in the years after 737 MAX deliveries resume and after the coronavirus pandemic recedes. Overall, BA had a strong credit profile for its rating before the MAX grounding, and Fitch’s ratings for the company incorporated the periodic stress periods that arise in the commercial aviation sector. However, the coronavirus is unmatched in its rapid impact on the aviation sector. Fitch’s forecasts include conservatism for potentially higher cost related to the 737 MAX situation. Fitch believes the lack of material 737 MAX cancelations since the grounding illustrates the aviation industry’s continued support for the aircraft, which also supports the rating. Total company order backlog at the end of the first quarter of 2020 was $439 billion compared to $463 billion at the end of 2019.
Boeing’s debt nearly doubled in 2019 to around $27.0 billion, and debt rose to $38.9 billion at the end of the first quarter after Boeing drew down its $13.8 billion delayed draw term loan. Debt will continue to rise in with today’s debt issuance. Fitch expects year-end 2020 debt could be approximately $45 billion after the company reduces commercial paper balances and meets debt maturities. If ending debt is higher than $45 billion, Fitch expects it would be offset by higher cash balances. Fitch expects Boeing will prioritize debt pay down starting in 2021.
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