Boeing (BA - Get Report) shares closed down 1% to $373.42 Monday after Fitch and Moody's lowered their outlooks for the Chicago aerospace giant to negative from stable based on uncertainty regarding the troubled 737 MAX aircraft.
"Fitch believes the 737 MAX will remain a concern throughout the aviation credit sector into 2020," Fitch said in a release. "The 737 MAX situation will reduce much of the financial cushion Boeing has at the current 'A' rating, leaving the company more exposed to other unforeseen events or industry developments."
Fitch said the change in its outlook is based "on regulatory uncertainty regarding the timing and global sequencing of the 737 MAX' return-to-service, the growing logistical challenge of returning parked planes to service and delivering stored post-production aircraft, the substantial financing needed for temporary working capital build-up, and the risk of higher concessions to airlines, especially if the 737 MAX grounding extends into the end-of-year holiday season."
"The MAX situation also presents significant public relations challenges, and the impact on Boeing's reputation and brand will be a watch item for the next year or more," Fitch said.
The 737 MAX has been grounded worldwide since March following two crashes less than six months apart that killed a total of 346 people. Several airlines have extended their cancellations of the ground aircraft.
"Key uncertainties remain in addition to the uncertain timing on RTS (return to service)," Fitch said. "These include pilot training requirements, public perception of the 737 MAX, 737 MAX valuations, and aircraft finance impact. There is also uncertainty surrounding the phasing of RTS throughout the world, although it appears that aviation regulators are working in a more coordinated manner than Fitch initially expected."
Last week Boeing, which is scheduled to report its second-quarter earnings on Wednesday, said it would book a $4.9 billion charge linked to the extended grounding of the 737 MAX. Boeing said the charge would reduce its second-quarter earnings and revenue by a collective $5.6 billion.
Fitch said the charge is already reflected in its conservative forecasts, and it is not a key driver of the Outlook revision.
"Fitch believes Boeing's credit profile can support the current 737 MAX stresses due to substantial liquidity, financial flexibility, low leverage, access to the capital markets, and revenue diversification," Fitch said. "Aside from the 737 MAX, Boeing's products and markets are healthy."
Moody's joined Fitch in downgrading the plane producer. The credit-rating company affirmed the A2 senior unsecured and P-1 short-term ratings for parent Boeing.
"The change in outlook to negative principally reflects that the grounding of the company's 737 MAX aircraft will run longer than we had expected, which will compound its operational disruption, costs and the size of the investment in working capital as production remains at a substantial rate of 42 per month," Moody's Senior Vice President Jonathan Root said in a report.