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S&P revises Boeing outlook to negative on reports it may have misled FAA

S&P Global Ratings revised its outlook for Boeing Co. to negative from stable due to reports that it may have misled U.S. aviation regulators about problems with the 737 MAX's flight controls, which the rating agency expects will impact the aircraft maker's competitive and financial positions.

The U.S. Federal Aviation Administration said Boeing had alerted authorities about "instant messages" between two of its employees regarding the maneuvering characteristics augmentation system, or MCAS, flight software, back when the 737 MAX was being certified in 2016. The FAA said it was "disappointed" that Boeing did not forward the transcript of the messages to authorities sooner.

The rating agency said this latest development could lead to a delay in the FAA's approval for the 737 MAX's revised flight software. A significant further delay could force Boeing to cut or suspend production of the aircraft line, negatively impacting company profits.

Boeing's reputation could also take a worse hit as a result of the reports, according to S&P Global Ratings. It warned that Boeing might face larger-than-expected cancellations of 737 MAX orders, higher payments to airlines affected by the aircraft's grounding on top of the $5.6 billion that it has already set aside for compensation costs, and a loss of confidence especially from overseas military customers who may have concerns about the company's products.

A delay in the FAA's approval of the 737 MAX's flight software will also lead to further approval delays from overseas regulators, complicating the delivery of over 400 aircraft units built since the 737 MAX was ordered grounded in March, the rating agency said. It expects no new deliveries before January 2020, while it will take until 2022 to deliver all the 737 MAX aircraft produced so far to their respective buyers.

A significantly longer 737 MAX grounding that leads to order cancellations, loss of market share and reduced production can lead to a downgrade. Meanwhile, Boeing's outlook might be revised to stable in the next two years if the company can resume 737 MAX deliveries and raise production to 57 aircraft a month, reduce the debt it incurred during the grounding, as well as avoid order cancellations and maintain market share in the narrow-body market.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings.