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Fitch Affirms Boeing's Ratings at 'A/F1'; Outlook Stable

Dépèche transmise le 23 janvier 2012 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A' long-term and 'F1' short-term Issuer Default Ratings (IDRs) for the Boeing Company (BA) and Boeing Capital Corporation (BCC). A full list of ratings is included at the end of this release. The Rating Outlook is Stable. The ratings cover approximately $12.4 billion of debt ($9 billion at BA, including approximately $360 million of non-recourse debt, and $3.4 billion at BCC).

After several years during which BA's credit profile weakened, Fitch expects the company's financial performance to improve in 2012. BA retired or lessened some key risks in 2011, and positive developments outnumbered the negative. Fitch expects cash flow and profits to improve this year, and cash deployment will likely be focused on debt maturities and pension contributions, beginning what should be a multi-year period of declining leverage.

The main driver of the improving performance will be Boeing Commercial Airplanes (BCA), where deliveries will grow across the portfolio, including a substantial increase in deliveries of 787s and 747-8s. BA also won several significant defense contracts in 2011, including the U.S. Air Forces's tanker program and several large international competitions. BA successfully renegotiated a key union contract in November 2011, largely eliminating what had been one of Fitch's main concerns for 2012. Negative developments in 2011 were mostly related to the U.S. defense spending outlook, with the threat of substantial automatic cuts in 2013 an item to watch.

BA's debt ratings are supported by the company's balanced business portfolio (52% commercial aerospace and 48% defense through nine months in 2011), liquidity position, financial flexibility, access to the capital markets, competitive positions in both of its main business lines, and large backlog.

Rating concerns for BA include margin levels that are low for the rating category; credit metrics that in some cases remain weak for the rating; the outlook for defense spending beyond fiscal 2012; and the susceptibility of the commercial aerospace industry to shocks such as terrorism and disease. Longer-term concerns include new competitors in the lower end of the narrow-body aircraft market.

While the 787 program made substantial progress in 2011, some concerns remain including an aggressive production plan; the lack of visibility into supplier and customer claims resulting from the program's delays; uncertainty about the program's profit margins; and the integration of the new Charleston facility into BA's operations.

Fitch estimates BA's manufacturing free cash flow (FCF; cash from operations less capital expenditures and dividends), excluding BCC, was between breakeven and negative $500 million in 2011 (including the impact of $500 million of discretionary pension contributions), but this range could be conservative given the number of new aircraft orders in the fourth quarter and the potential for better than expected operating execution. FCF should improve in 2012, largely due to the delivery of 787s and 747s, and Fitch's initial estimate is greater than $2.5 billion.

Fitch expects cash deployment will be focused on funding debt retirement, strengthening the pension plan, and maintaining strong liquidity. Fitch's ratings incorporate expectations that BA will retire more than $1 billion of maturing debt in 2012 and approximately $600 million in 2013. Fitch believes other cash deployment actions, including share repurchases, will depend on the level of the company's cash generation.

As of Sept. 30, 2011, BA's liquidity position, excluding BCC, was approximately $10.8 billion, consisting of $7.9 billion in cash and investments, and complete availability under $2.9 billion of bank facilities. In November, BA replaced its existing facilities with larger credit lines totaling $4.6 billion maturing in November 2012 and November 2016. BCC has access to $1.5 billion of these facilities, and BA has exclusive use of the remaining $3.1 billion.

For the latest 12 months (LTM) ending Sept. 30, 2011, BA's leverage (gross debt to EBITDA), excluding BCC, was 1.3 times (x) compared to 1.4x in 2010, 1.2x for 2009, and 0.6x in 2008. Metrics worsened starting in 2009 because of $5 billion of debt issuance and weak FCF. Fitch expects BA's leverage metrics will improve in 2012, and gross leverage could move below 1x in late 2012 or 2013. The preceding calculations exclude BCC by accounting for the subsidiary using the equity method, and non-recourse debt at BA is also excluded. The calculations also exclude non-cash charges, but include the impact of non-cash pension expense.

The Large Commercial Aircraft (LCA) market is at the start of a strong upturn which will drive higher revenues and cash generation at BCA. A large order book, overbooked delivery slots, new airplane model deliveries, and geographic diversity support this outlook. Fitch expects BCA's deliveries will climb 24% to 590 aircraft in 2012 and 12% to 660 aircraft in 2013. These forecasts are based on the company's announced production rate changes and expected deliveries of already-built 787's and 747-8's. Fitch's initial estimates for 787 and 747-8 deliveries in 2012 are 40-50 and 20-25. Fitch estimates BCA's revenues could rise 30%-35% in 2012.

Potential threats to the LCA delivery outlook include the supply chain; the rapid production ramp-up, particularly for the 787; a few unhealthy airlines; and the tepid global economy. The production ramp-up over the next several years is significant, especially in the wide-body segment, and this could strain the supply chain, which combined with tighter credit, makes small suppliers a key watch item for 2012. While the overall airline industry is healthier than it has been in a few periods over the past decade, there are pockets of weakness, as illustrated by AMR's bankruptcy filing and the financial problems in India's airline industry.

The U.S. defense spending outlook will be uncertain and volatile over the next one to two years, and program details will be needed to evaluate the full effect on defense credit profiles. Fitch estimates the worst-case scenario for Dept of Defense (DoD) spending reductions through 2021 is nearly $1 trillion. In Fitch's view, the most negative element of this scenario is an estimated 12%-13% decline in spending in fiscal 2013, which Fitch understands would be made across the board without consideration of program health or national security priorities. Fitch expects less severe and/or more orderly spending scenarios are possible because Congress could act to avoid or modify sequestration's automatic cuts beginning in January 2013. Fitch's forecasts for BA's defense businesses include modest revenue declines for the next several years. Pressure from the DoD budget should be partly offset by sizable contract wins in 2011 and relatively low exposure to some of the most at-risk parts of the budget.

The size of BA's pension deficit is a concern, and Fitch expects pension contributions will be a cash deployment priority for the next several years. At the end of 2010 BA's pension obligations totaled $59.1 billion, and the deficit was $9.85 billion, for a funded percentage of 83%. On an ERISA funding basis the plan was fully funded. The funding position likely deteriorated as of the end of 2011 as a result of low financial market returns. Required cash contributions are modest, but the company regularly makes discretionary contributions, including $500 million in 2011.

The ratings for BCC are linked to those of its parent, BA, reflecting Fitch's belief that the company is of strategic importance to its parent and that there is an implicit level of support between the entities. BCC has several arrangements with BA including a formal support agreement in which BA has committed to make contributions to BCC should its fixed-charge coverage fall below 1.05x. Still, BCC's ratings also reflect its solid liquidity profile, strong funding flexibility, improving asset quality, prudent risk management and sound operating performance.

BCC's operating performance is consistent with the company's operating strategy and focuses on minimizing the use of its own balance sheet in support of BA aircraft sales. Revenues have trended down in recent years due to a smaller portfolio, run-offs and aircraft sales; however, the company has remained solidly profitable. Asset quality has gradually improved as the company worked through a number of issues with domestic airline carriers and exposed itself to less risk as a result of the decrease in customer financing. Given improving sector conditions, and direct BA support, Fitch believes loss reserves remain adequate to cover potential losses on receivables.

Fitch affirms the ratings for both BA and BCC as follows:

--Long-term IDR at 'A';

--Senior unsecured debt at 'A';

--Bank facilities at 'A';

--Short-term IDR at 'F1';

--Commercial paper programs at 'F1'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable criteria and related research

-- '2012 Outlook: Global Aerospace and Defense' (Dec. 20, 2011);

-- 'U.S. Defense: Rising Pressure on Credit Profiles' (Nov. 30, 2011);

-- 'Corporate Rating Methodology' (Aug. 12, 2011);

-- 'Rating Aerospace and Defense Companies: Sector Credit Factors' (June 10, 2010);

--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);

--'Finance and Leasing Companies Criteria' (Dec.12, 2011);

--'Rating Linkages in Nonbank Financial Subsidiary Relationships' (Nov. 29, 2011).

Applicable Criteria and Related Research:

Rating Linkages in Nonbank Financial Subsidiary Relationships

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656583

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659834

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

Rating Aerospace and Defence Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=529973

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.

Business Wire

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