Moody’s puts Boeing ratings on downgrade watch after strike vote
A cut from Baa3 would push Boeing into speculative-grade territory, potentially narrowing its access to debt investors.
By Marcus V. Thorne · Markets Editor
· 3 min read
Moody’s Ratings placed all of Boeing Co.’s ratings under review for a possible downgrade after the aerospace company’s machinist union voted to strike. Boeing’s Baa3 rating sits at the bottom of Moody’s investment-grade scale, so a one-notch cut would move the company into speculative-grade debt.
The review raises a material financing question for Boeing. A fall below investment grade would make the company’s bonds ineligible for some investors, including pension funds and other institutions restricted to higher-rated debt, and could complicate its ability to borrow.
Moody’s said it will examine how long the strike lasts and how it affects Boeing’s cash flow. The ratings agency also said it will assess whether Boeing may need to raise equity to strengthen liquidity.
The company’s shares were recently down 3.7%, according to MarketWatch. The stock has declined 40% so far this year.
Why the rating review matters
Credit ratings influence the terms on which companies raise debt. Investment-grade ratings signal a lower assessed risk of default, while speculative-grade ratings usually restrict the buyer base and can increase borrowing costs.
For Boeing, the threshold is immediate because Baa3 is the lowest investment-grade rating in Moody’s scale. If Moody’s lowers the rating by one level, Boeing’s debt would no longer qualify as investment grade under that agency’s framework.
That change can have mechanical effects in bond markets. Some funds and mandates are allowed to hold only investment-grade securities. If a borrower loses that status, those investors may be unable to buy new debt from the issuer or may face limits on existing holdings, depending on their rules.
Cash flow and production are in focus
Moody’s linked its review to the strike and to Boeing’s ability to improve operations. The agency said it would consider the strike’s effect on operating cash flow and whether it delays expected increases in production rates for the 737 and 787 aircraft programs.
Production rates matter because aircraft deliveries are a central driver of cash generation for Boeing. If labour disruption or manufacturing constraints slow output, the company’s cash recovery could take longer than expected, a factor Moody’s said it will include in its review.
The agency also pointed to the potential need for an equity raise to support liquidity. Equity issuance can add cash without increasing debt, but it may dilute existing shareholders. Moody’s did not specify the size, timing or likelihood of any such transaction.
Boeing has not been downgraded in the action reported by Moody’s. The agency has opened a review process, meaning it will evaluate the strike’s duration, the financial effects and production progress before deciding whether to affirm or lower the ratings.
This story draws on original reporting from MarketWatch.
