Moody's on Wednesday lowered its rating on Boeing's debt and said it sees long-term risk to the company's reputation in the wake of the planemaker's plan to halt production of its best-selling 737 Max jetliner.
A further downgrade of the ratings could occur if the grounding runs into the second half of 2020, especially if aviation authorities identify some other component of the MAX's flight management system that requires updating, Moody's said.
However, the ratings agency retained its investment-grade credit rating on Boeing's debt, given the company's liquidity, financial flexibility and dominant position in the market.
Boeing on Monday said it would suspend production of its 737 Max jets in January, its biggest assembly-line halt in more than 20 years, as fallout from two fatal crashes of the now-grounded aircraft drags into 2020.
Moody's lowered the company's senior unsecured and short-term debt, to 'A3' from 'A2' and to 'Prime-2' from 'Prime-1'. Issuers rated a 'Prime-2' have a strong ability to repay short-term debt obligations, compared with issuers with a 'Prime-1' rating, who have a superior ability to repay it.
It said it would not raise its rating until the 737 Max jets fully return to service and the financial impact of the grounding has been cleared up.
The ratings agency also highlighted the rising costs for Boeing due to the grounding and the production halt including ongoing financial support to many suppliers, airlines' and lessors' claims for compensation, which could lower the 737 program's margins and cash generation for years to come.
Fitch affirmed Boeing's ratings on Tuesday at 'A'/'F1' and outlook at 'negative'.
"The Max situation also presents significant public relations and regulatory challenges, and the impact on Boeing's reputation and brand will be a watch item for the next several years," Fitch had said.