Moody's placed the debt ratings of Boeing Co. and subsidiary Boeing Capital Corp., including their A3 senior unsecured ratings, on review for downgrade, as the aircraft manufacturer continues to struggle to secure re-certification of its beleaguered 737 MAX jets.
The rating agency said the longer the planes remain grounded, the greater the risk to Boeing's reputation, which could have a more lasting impact on its future business. Moody's warned that the extended groundings could lead to an increase in compensation claims from customers and other costs, as well as further delays to monthly aircraft production rates, which may result in weaker cash generation.
"Recent developments suggest a more costly and protracted recovery for Boeing to restore confidence with its various market constituents, and an ensuing period of heightened operational and financial risk, even if certification of the MAX comes relatively near-term, as expected," said Jonathan Root, Moody's senior vice president and lead analyst.
Moody's cited the recent job cuts announced by Boeing parts supplier Spirit AeroSystems Holdings Inc. as an event risk putting pressure on the aerospace giant's credit profile. The recently revealed message exchanges between Boeing employees, which raised questions about the company's interactions with the Federal Aviation Administration, also highlighted judicial, legislative and regulatory risks, according to the rating agency.
As part of the downgrade review, Moody's will consider the timings for the re-certification of the 737 MAX jets by regulators around the world and for the resumption of the production and deliveries of the troubled planes.
Moody's said Boeing's A3 senior unsecured rating reflects the company's position as one of only two manufacturers of large aircraft, and takes into account the diversification of its businesses, which helps reduce risk. The rating agency added that recent news about the 737 MAX indicates that the company is making significant progress in its design and production reviews, and that the company's relationship with the FAA may be improving.