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Fitch downgrades Boeing due to uncertainty over 737 MAX return, costs

Fitch Ratings downgraded Boeing Co.'s long-term ratings to A- from A, and its short-term ratings to F2 from F1, citing the continuing regulatory uncertainty regarding the timing and global phasing of the 737 MAX's return to commercial service.

The rating agency also lowered Boeing Capital Corp.'s long-term ratings to A- from A. The outlook for the ratings is stable.

Aside from the 737 MAX's return to service, the rating agency noted the logistical challenges Boeing could face once production of the aircraft resumes, given the possibility of supplier issues the longer the suspension of production is in force.

Boeing has also seen a "substantial" build-up in debt over the past nine months, in addition to mounting costs related to additional training requirements and compensation payments to airlines in relation to the grounded 737 MAX fleet.

Fitch expects Boeing's debt to climb to a range of $32 billion to $34 billion in the first and second quarters of 2020, having nearly doubled to about $27 billion in 2019.

"The MAX situation, including recently-released internal emails, is also likely to increase business risk from fines, litigation, weakened competitive position or reputation damage," Fitch said, noting that the 737 MAX crisis has reduced much of the company's financial cushion, making it more vulnerable to shocks or industry developments.

The rating agency said the stable outlook on Boeing reflects the strength of the company's other businesses, which will allow it to generate cash and reduce debt in the near-term once 737 MAX deliveries resume. The outlook is also supported by Boeing's continued access to the capital markets, financial flexibility, and the lack of material cancellations of the MAX since its grounding in March 2019, according to Fitch.

The ratings downgrade came the same day ABC News reported that new software issues involving the 737 MAX have emerged, causing potential further delays to the airplane's return to service.