Boeing Cedears Alert: Moody’s warns of possible rating downgrade due to workers’ strike

Boeing Co. suffered another blow this Friday, when Moody’s Ratings has put all of the aerospace giant’s credit ratings on review for a possible downgradedue to concerns about the impact of a strike by the train drivers on the company’s cash flow. This was reflected in the company’s shares and, of course, in the Cedear listed on the Buenos Aires market.

The Baa3 rating is already the lowest level within investment grade, meaning a downgrade would immediately take it to speculative-grade, or “junk,” status. This, in turn, would hamper Boeing’s ability to borrow as it tries to recover from a series of production snafus. It would also exclude its bonds from a much broader group of investors, including pension funds, which can only own investment-grade debt.

In this context, the shares of the aerospace giant are extending their red. In Friday’s session they cut by 3.7%, but the negative balance rose to almost 7% in the last month and almost 20% in the last six months.Boeing shares are trading at $156.80. Moody’s said it would assess the duration of the strike and its impact on cash flow, as well as the possible issuance of shares that Boeing might need to bolster its liquidity.

The warning from the risk rating agency

Moody’s Ratings put all of Boeing Co.’s ratings on review for a possible downgrade after the company’s machinists union voted to strike. The Baa3 rating is already at the lowest level of investment grade, meaning a downgrade would immediately push it into speculative or “junk” territory.

“We will also assess the extent to which the strike and continued challenges in ramping up production of the 737 and 787 models impact growth in production rates and improvement in Boeing’s operating cash flow,” the rating agency said in a statement. It will also review the costs for the company to complete fixed-price contracts in the defense business, which will continue to impact earnings and operating cash flow.

On the other hand, Fitch Ratings said that the company’s rating “has limited scope in the face of a strike“If the current strike lasts one to two weeks, it is unlikely to put pressure on the rating,” Fitch said. “However, a prolonged strike could have a significant operational and financial impact, increasing the risk of a downgrade.”

Fitch and S&P Global Ratings also have Boeing at the lowest level of investment grade.

On a call with analysts on Friday, Boeing Chief Financial Officer Brian West was quoted as saying the company is committed to maintaining its balance sheet and is evaluating its capital structure to ensure it can meet upcoming debt payments in the coming months. “We remain committed to prudently managing the balance sheet,” West said, according to Bloomberg. “We want to prioritize the investment-grade credit rating.”

Moody’s said a prolonged strike would disrupt the recovery of the commercial aircraft business, which is still in its early stages.

“We believe narrowbody 737 MAX production increased to nearly 30 units per month in July and August. This compares with the U.S. Federal Aviation Administration (FAA) production limit of 38 per month,” the statement said.

Calculating the strike’s daily cost to Boeing is complicated, Moody’s said. It noted that the 2008 IAM strike, which lasted 57 days, cost the company about $1.5 billion a month, or $50 million a day, when 737 production was at its normal rate of about 34 a month.

“In addition, the cost base of the commercial aircraft segment was lower compared to the current cost base,” Moody’s said.

The news came on a day when Boeing shares were down, but bondholders were taking the opposite tack earlier in the session, buying up outstanding notes in large volumes. Spreads were unchanged from Thursday amid net bond buying, as shown in the charts below from data solutions provider BondCliQ Media Services. That pattern could change with the Moody’s news.