Boeing's creditworthiness took another hit this week as S&P downgraded its outlook on the company to "negative" from "stable." This move puts Boeing's already precarious investment-grade rating just one step away from being considered "junk." The decision by S&P comes on the heels of a rough patch for Boeing. In January, a mid-air blowout of a cabin panel on a Boeing 737 MAX forced an emergency landing and raised fresh concerns about the planemaker's manufacturing quality. This incident prompted Boeing to slow down production of its best-selling jets, further impacting its cash flow.
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Adding to Boeing's woes is its recent financial performance. The company reported burning through $3.93 billion in free cash flow during the first quarter, raising concerns about its ability to meet upcoming debt obligations. Moody's, another credit rating agency, took a more immediate stance by downgrading Boeing's rating to one level above junk status just a day before S&P's negative outlook revision.
S&P highlighted several factors contributing to its decision. The ongoing regulatory scrutiny Boeing faces in the aftermath of the cabin panel incident creates production uncertainty, particularly for the 737 MAX program. Additionally, Boeing is facing a leadership change with CEO Dave Calhoun announcing his departure by the end of the year. This uncertainty at the top further complicates the company's future prospects.
The negative outlook from S&P indicates a heightened risk of Boeing's credit rating being downgraded to junk status. This would have significant financial implications for the company. It would make borrowing more expensive and potentially limit Boeing's access to capital. Investors would likely shy away from Boeing bonds, further pressuring the company's financial health. Boeing is at a critical juncture. It needs to address production issues, improve its cash flow generation, and navigate the upcoming leadership change effectively. All eyes will be on Boeing's ability to regain investor confidence and climb back to a more secure financial footing.