Boeing's credit rating is safe, for now, S&P says as company embarks on cost cuts

By Ciara Linnane

Boeing is implementing a hiring freeze and other measures to preserve cash as workers strike

S&P Global Ratings became the third of the big three rating agencies to weigh in on the strike at Boeing Co. on Monday, but it struck a more sanguine tone than its rivals as the beleaguered aerospace company reportedly embarked on a hiring freeze.

S&P said its Boeing (BA) ratings are not immediately affected by the strike, which came after a union representing the company's machinists rejected a contract offer last week.

Moody's Ratings placed the credit on review for a possible downgrade Friday on fears the strike will put more pressure on free cash flow, and Fitch Ratings said it's badly timed.

Read also: Boeing's credit rating risks being cut to junk after Moody's frets about strike

Boeing enacted cost-cutting measures, including a hiring freeze and furloughs, as it prepares for a potentially long strike, according to a memo from Chief Financial Officer Brian West on Monday.

Boeing also is halting non-essential travel and pay increases, cutting back on expenses related to air shows and charitable donations, and looking to cut supplier expenditures.

The strike, launched on Friday, will likely delay Boeing's recovery, including its goal of ramping up Max production to 38 planes a month by the end of the year, S&P said in a statement. "We view the company's plans to increase and stabilize its aircraft production volumes as necessary for it to generate free cash flow."

All three agencies currently have Boeing at the lowest rung of investment trade, which for S&P means BBB-minus. That means a downgrade would lower it into speculative-grade, or "junk" territory.

That would in turn hamper Boeing's ability to borrow money at a time it is trying to turn itself around following a series of production missteps. It would also shut the bonds out from a much bigger pool of investors, including pension funds, that can only own investment-grade debt.

A short strike would likely be manageable and not lead to a negative rating action, but an extended stoppage would be costly and difficult to absorb, given the existing strain on the company's finances, said S&P.

The company has $12.6 billion of cash and securities and $10 billion in undrawn credit facilities, said S&P. The company also has about $45 billion of debt.

"Our rating on Boeing rests on our assumption that it will expand thedeliveries of its Max planes and generate positive free cash flow in 2025," said the statement.

The rating is further bolstered by the company's huge order backlog and the effective market duopoly that it shares with Airbus, as the two companies make most of the world's supply of narrowbody and widebody aircraft, said S&P.

The agency is also encouraged by the company's commitment to maintain an investment-grade rating and to use equity to fund its pending acquisition of Spirit AeroSystems Inc. (SPR) after initially planning to usecash.

"Based on its public comments, we assume Boeing is also open topotentially issuing additional equity," said S&P.

Boeing's outstanding bonds were being sold off on Monday, although spreads remained steady, as the following charts from data solutions provider BondCliQ Media Services show.

Selling was concentrated in shorter-dated maturities.

Spreads were little changed from Friday.

Boeing's stock was down 1.2% Monday and has fallen 40.6% in the year to date, while the S&P 500 SPX has gained 18%.

For more: Boeing's stock drops as workers strike, and history suggests it could fall more

Claudia Assis in San Francisco contributed.

-Ciara Linnane

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09-16-24 1343ET

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