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Boeing slides after ratings agencies turn negative on maker of grounded 737 Max

Key Points
  • Fitch Ratings and Moody's Investors Service upheld Boeing's credit ratings, but warned the ratings are at risk due to the prolonged impact of its grounded 737 Max planes.
  • The jetliners are Boeing's bestsellers and they've been grounded since mid-March after two fatal crashes.
Grounded Boeing 737 MAX aircraft are seen parked in an aerial photo at Boeing Field in Seattle, Washington
Lindsey Wasson | Reuters

Boeing shares slid Monday after ratings agencies issued a negative outlooks for the maker of the 737 Max, as the fallout from two fatal crashes of the planes continue to pile up on the manufacturer.

Fitch Ratings and Moody's Investors Service upheld Boeing's credit ratings but warned that the worldwide grounding is going on longer than anticipated, driving up Boeing's costs and hurting cash flow, putting its credit ratings at risk.

The planes, Boeing's bestselling jetliner ever, have been grounded worldwide since mid-March after the second of two crashes. Together the air disasters claimed 346 lives.

Regulators haven't said when they plan to allow the planes to fly again and are yet to approve a software fix Boeing has prepared after an anti-stall system was implicated in the crashes, one in Indonesia in October and another in Ethiopia in March.

Boeing last week told investors it would take a $4.9 billion charge in the second quarter to compensate airlines affected by the worldwide grounding, now in its fifth month. Boeing's 737 Max customers, including Southwest, United and American, have canceled thousands of flights during the peak summer travel season and have taken the plane off their schedules until November with no clarity on when the planes will be permitted to fly again.

Moody's warned that it could cut Boeing's credit ratings if "it becomes apparent that the grounding will extend into 2020 and Boeing does not reduce the production rate to conserve working capital."

Boeing paused deliveries of the Max and cut production by nearly 20% to 42 a month in the wake of the second crash. Airplane makers generally are paid once the aircraft are delivered to airlines. New orders for the planes have ground to a halt.

Fitch said it cut its outlook from "stable" to "negative" because Boeing could end up paying airlines more as the grounding wears on, and regulatory uncertainty is posing "the growing logistical challenge of returning parked planes to service and delivering stored post-production aircraft."

"Fitch believes the 737 MAX will remain a concern throughout the aviation credit sector into 2020," the ratings agency said in a release. "The 737 MAX situation will reduce much of the financial cushion Boeing has at the current 'A' rating, leaving the company more exposed to other unforeseen events or industry developments."

It said Boeing's debt could rise by $10 billion to more than $24 billion by the end of the year because of the Max grounding. It added that this amount would fall when deliveries of the planes resume.

Boeing's stock lost 1% to close at $373.42 a share.

Boeing is scheduled to report second-quarter earnings Wednesday morning.

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