Dépêches

Fitch Expects to Rate Boeing's New Unsecured Notes 'A+'

Dépèche transmise le 10 mars 2009 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign 'A+' ratings to The Boeing Company's (BA) planned issuance of new senior unsecured notes (five, 10, and 30 year maturities). Proceeds from the new notes will be used to increase liquidity and for general corporate purposes.

BA's debt ratings are supported by the company's balanced business portfolio (approximately 50% defense and 50% commercial), financial flexibility, competitive positions in both of its main business lines, large backlog, high levels of defense spending, and solid credit metrics. The company's liquidity position and favorable debt maturity schedule also support the ratings. Fitch believes that BA has evolved into a more diverse and lower risk company than it was at the beginning of the last aerospace down cycle that began in late 2001.

Fitch's key concerns for BA include the significant build-up of inventories in 2008, the potential for additional delays in the 787 program, margin levels which are low for the rating category, periodic labor disruptions, and the performance of some programs at both Boeing Commercial Airplanes (BCA) and Integrated Defense Systems (IDS). The pension deficit and several litigation actions are also potential concerns.

Additional concerns related to BCA include the likelihood of production cuts in response to the weak global economy and the susceptibility of the commercial aerospace industry to shocks such as terrorism and disease. Additional concerns at IDS include a string of major contract competition losses over the past several years and increasing pressure on the Department of Defense (DoD) budget. Fitch also sees risks in the health of the aircraft finance market and portfolio concentration at Boeing Capital Corporation (BCC).

As of Dec. 31, 2008, BA's liquidity position, excluding BCC, was approximately $4.8 billion, consisting of $3.3 billion in cash and investments, and complete availability under $1.5 billion of bank facilities. BCC also had $305 million of cash and $1.5 billion of bank facility availability as of the end of 2008. While Fitch considers this liquidity position to be solid, it fell by $8.5 billion during 2008 because of significant cash usage attributable to the delays in the 787 and 747-8 programs and the machinists strike. The resulting inventory build-up drove negative $3.8 billion of free cash flow in 2008 (excluding BCC and after dividends). Some of the inventory build will reverse in 2009, but the bulk of the inventories will not generate cash until 787 deliveries begin, currently scheduled for 2010. BA's underfunded pension ($8.4 billion deficit compared to a surplus of $4.7 billion at the end of 2007) could affect liquidity in the medium term, but required contributions are manageable in 2009 and 2010. BA has significant financial flexibility in its ability to stop share repurchases, which totaled $7.4 billion over the past three years, but which should be minimal in 2009.

BA is forecasting 480-485 airplane deliveries in 2009, but Fitch's ratings incorporate expectations for production cuts later in 2009 and into 2010. Fitch believes that BA could maintain its current ratings with significant BCA revenue declines assuming the company takes prompt actions to adjust its cost base to lower production levels, as the company did in 2001 and 2002. Several factors are helping to support BCA's production rates in 2009: overbooking of delivery slots, deferred deliveries from 2008 due to the machinists strike (105 aircraft), and a large backlog (3,633 at the end of February).

The 787 has become an increasingly important credit issue, and Fitch could revise the Rating Outlook to Negative if there are additional delays or problems. First flight is now scheduled for the second quarter, and first delivery is projected for the first quarter of 2010, almost two years late. There is still risk in this program, including flight testing, certification, and delivery ramp up. However, if 787 deliveries start in 2010, they will help offset possible delivery declines of other models, and in the longer term the 787 could develop into a very competitive product.

Fitch expects BCC's portfolio to rise in the next several years because of weakness in other sources of aircraft finance. BA currently forecasts $1 billion of new financing at BCC in 2009, but Fitch expects this to be higher, which could require some capital contributions from the parent and debt issuance at BCC. Fitch estimates that BCC has the financial strength to finance up to 10% of BA's deliveries over an 18 month period without affecting the current ratings, although this level of financing could combine with other factors to cause a review of the outlook or ratings. Fitch will also focus on the terms of financing transactions in assessing the impact on BA/BCC's credit quality.

In 2008 BA's leverage (total gross debt-to-EBITDA), excluding BCC, was 0.6 times (x), compared with 0.5x at the end of 2007. Interest coverage in 2008 was 22.1x, compared with 25.1x in 2007. Fitch projects that BA's leverage will remain under 1.0x in 2009, including the impact of the company's proposed debt issuances. The preceding calculations exclude BCC by accounting for the subsidiary using the equity method, and non-recourse debt at BA is also excluded.

Fitch currently rates BA and BCC as follows:

--Issuer Default Rating (IDR) 'A+';

--Senior unsecured debt 'A+';

--Bank facilities 'A+';

--Short-term IDR 'F1';

--Commercial paper programs 'F1'.

The Rating Outlook is Stable. The ratings cover approximately $7.5 billion of debt ($3.86 billion at BA, including approximately $380 million of non-recourse debt, and $3.65 billion at BCC). BCC's ratings are linked to BA's ratings due to the existence of a support agreement and other factors such as an operating agreement and transactional support provided to BCC by BA.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.