Dépêches

Fitch Expects to Rate Boeing's New Notes 'A+'; Comments on Cash Flow & Leverage

Dépèche transmise le 17 novembre 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 three-year and seven-year senior unsecured notes. Fitch expects the proceeds from the new notes will be used to increase liquidity and for general corporate purposes.

Fitch currently rates BA and Boeing Capital Corporation (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 Negative. Assuming approximately $1 billion of proceeds from today's transactions, the ratings cover approximately $13 billion of debt ($8.6 billion at BA, including approximately $380 million of non-recourse debt, and $4.4 billion at BCC).

Delays in the 787 and 747-8 programs over the past 18 months have negatively affected BA's credit quality because of inventory build-up, delayed advance payments, and higher development expenses. Cash flow pressures will likely persist into 2011 due to continued inventory build-up in support of initial 787 deliveries. Although free cash flow (cash from operations less capital expenditures and dividends) will probably be positive in 2009 (consolidated $511 million through September), Fitch believes that break-even or negative free cash flow is possible in 2010 depending on the ultimate schedule for 787 deliveries, production rates on other aircraft models, and the company's working capital management, which has been good in 2009 considering the 787 inventory pressures and reduced advances because of lower orders. The company's decision to use up to $1.5 billion of stock instead of cash for pension contributions in 2009 and 2010 alleviates some cash pressure. Fitch estimates that cash generation could be substantial starting in the second half of 2011 as 787 inventory is delivered, barring additional program delays or inventory write-downs.

As of Sept. 30, 2009, BA's liquidity position, excluding BCC, was approximately $8 billion, consisting of $6.5 billion in cash and investments, and complete availability under $1.5 billion of bank facilities. Including today's transaction, BA has increased parent company debt levels by approximately $5 billion in 2009. The debt issuance has allowed BA to rebuild some of its liquidity position, and Fitch estimates that BA (excluding BCC) could have less than $500 million of net debt (gross debt less cash) at the end of 2009.

Fitch considers BA's credit metrics to be weak for the 'A+' rating, and the 787 developments have eroded the margin of safety at the current rating level. Including the impact of the proposed debt offerings, Fitch projects that BA's leverage (gross debt to EBITDA) in 2009 will be approximately 1.3 times (x), which Fitch considers to be weak for the current rating, particularly given that BA's businesses have not experienced the revenue declines experienced by many industrial companies during the current recession. Leverage could deteriorate in 2010 depending on commercial airplane build rates and 787 developments. 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-recurring charges, but include the impact of approximately $900 million of non-cash pension expense.

Fitch revised BA's Rating Outlook to Negative from Stable in April. The Outlook revision reflected Fitch's higher level of concern regarding several issues, including the global recession's impact on the commercial aerospace industry, increasing pressure on Department of Defense (DoD) budgets, the health of the aircraft finance market, the risk of further delays in the 787 program, and BA's buildup of inventories in 2008, which reduced the company's liquidity position by $8.5 billion. Other than the additional delays in the 787 program, most of the other concerns reflected in the Negative Outlook have moderated in the past six months.

Rating concerns for BA include the susceptibility of the commercial aerospace industry to shocks such as terrorism and disease; margin levels that 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. The pension deficit and several litigation actions are also potential concerns.

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, and high levels of defense spending. BA'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.

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, but BA does not guarantee BCC's debt.

Additional information is available at www.fitchratings.com.

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