737 Max: Boeing faces negative cash flow near $10bn in 2020, Moody’s
Moody’s, one of the leading international agencies, has warned that Boeing might be facing a “significant negative free cash flow near $10 billion in 2020” due to downgraded ratings resulting from the B737 Max crisis.
The Agency downgraded Boeing Capital Corporation from A3 to Baa1 and warned that Boeing and its subsidiary “remain on review for downgrade.”
However, the planemaker managed to keep its short-term rating at Prime-2, which the credit agency is not going to change at this time.
“Boeing’s Q4 earnings indicate significantly higher cash burn in 2020 than previously anticipated, increasing reliance on debt for funding the impact of a lower-for-longer recovery of the MAX program,” Moody’s senior vice president and lead analyst Jonathan Root said in a statement on Friday.
The agency expects that it will take Boeing up to three years to restore the production system of its ill-fated 737 MAX jets and that this will require additional costs.
Even if the plane manufacturer manages to get the greenlight from aviation regulators to get the aircraft back in the skies by mid-spring, the crisis will still result in “significant negative free cash flow near $10 billion in 2020,” according to Moody’s.
“The review for downgrade mainly reflects the ongoing uncertainty of when the US Federal Aviation Administration (FAA) will unground the MAX and the potential financial impact of various associated risks,” the agency said.
It added that financial costs linked to the worldwide groundings could lead to a rating downgrade to Baa2, as the US company could issue more debt.
On Wednesday, Boeing announced that it had lost $636 million in 2019 – the company’s first annual loss in 22 years – as its once-bestselling plane remains grounded after being involved in two crashes that left 346 people dead.
Other challenges dovetailing the crisis, according to reports, are that Boeing’s shares fell by almost 6 per cent following reports that regulators plan to keep the company’s fleet of troubled 737 MAX airplanes grounded until June or July, months later than originally expected.
Boeing stock was down 3.3 percent on Wednesday at $313.37 per share, its lowest level in a year.
Boeing’s largest suppliers, General Electric and Spirit AeroSystems, were also down, by 1.2 percent and 3.8 percent respectively.
The Federal Aviation Administration said in a statement: “The agency is following a thorough, deliberate process to verify that all proposed modifications to the Boeing 737 MAX meet the highest certification standards. We have set no time frame for when the work will be completed.”
Boeing said: “We are informing our customers and suppliers that we are currently estimating that the ungrounding of the 737 MAX will begin during mid-2020. Returning the MAX safely to service is our number one priority, and we are confident that will happen.”
The company added: “We acknowledge and regret the continued difficulties that the grounding of the 737 MAX has presented to our customers, our regulators, our suppliers, and the flying public.”
