Fitch affirms Boeing rating, Bernstein upgrades
Fitch Ratings has affirmed its Issuer Default Ratings and debt ratings for Boeing and Boeing Capital at A+/F1, although its rating outlook for the two companies remains negative. Boeing Capital’s ratings are linked to Boeing’s ratings due to support agreement and other factors such as transactional support provided to Boeing Capital by Boeing. However, Boeing does not guarantee Boeing Capital’s debt.
The negative rating outlook for Boeing is related to near-term risks, particularly the manufacturer’s all important B787 programme the “aggressive” production plan for the aircraft. The first flight of the aircraft in Dec-2009 eased some of the concerns related to the programme.
Other concerns related to the programme resolve around the two and a half years of delays that have affected it. Fitch highlights a lack of visibility into compensation claims from suppliers and customers, the large inventory being built prior to certification and the integration of the new Charleston facility into BA's operations. There is still uncertainty about the program's profit margins.
If the B787 programme remains on track or suffers only modest additional delays, Fitch believes 2010 could be the peak of Boeing’s current product development cycle. It could also be the low point of the commercial aerospace downcycle, which Fitch considers to have been moderate.
Also of concern is the deterioration of some of Boeing’s credit metrics, due to the company’s USD5 billion debt issuance during 2009. Declining commercial and defence revenue over 2010 and the draining of cash flow by the company’s B787 and B747-8 programmes have also affected the outlook.
Other concerns linked to the negative outlook, such as potential production cuts, the aircraft finance market, and US defence budget have eased in the past year. Boeing’s cash performance and liquidity in 2009 were better than expected, but liquidity is forecast to over 2010 due to the building of B787 and B747-8 inventories before the aircraft go to customers.
2010 could be a strongly positive year for Boeing, reaping the benefits of the B787 and B747-8 programmes. Provided everything goes to plan for Boeing, Fitch expects strong revenue growth, substantial cash flow, lower R&D expenses and reduced capital expenditures.
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