Boeing Downgraded on 787 Delays

Moody’s Investor Services (MCO) has downgraded Boeing Co.’s (BA) rating outlook to "negative" from "stable". The major reason for the downgrade was the delay in the airplane maker's new 787 series, besides other setbacks that had hurt its financial flexibility.

Pitted against Airbus’s A319 aircraft, Boeing’s 787 series is plagued by delays. The inaugural test flight at the end of fiscal 2009 is more than two years behind the original delivery schedule. The company has already deferred the inaugural delivery of the 787 series aircraft five times.

Boeing has witnessed falling orders in the recent times for its commercial planes on account of tepid demand for air travel and cargo services. Already, a slew of commercial airlines have cancelled or deferred their fleet additions. Boeing has cut costs and announced reduction in its workforce along with scaling back production of some aircrafts. Moody's estimates a 20% production cut would affect Boeing's operating profit by around $1 billion per year. Boeing has nearly doubled its corporate debt this year due to the acquisition of 787-related businesses, the payout under guaranty and the ramp-up of inventory levels.

Headquartered in Chicago, Boeing is the world’s largest manufacturer of commercial jet liners and military aerospace products (based on total sales). Boeing designs and produces commercial airplanes, defense systems, and civil and defense space systems. It is also the largest NASA contractor. Non-airplane products include helicopters, electronic and defense systems, missiles, satellites, rocket engines, launch vehicles, and advanced information and communication systems.

We maintain our market Neutral recommendation on the shares.

Comments

[dswoope:]

Boeing's 787Dreamliner series is pitted against Airbus's A350XWB series, which is reported to have an Entry Into Service [EIS] date of 2013.
A380, A400M, and 787Dreamliner have all had their challenges’, the A350XWB will be no different in the number and types of challenges it faces. What will be different is how Airbus deals with these challenges. If its leadership fails to demonstrate a step change from the A380 program (in how it communicates with its suppliers and customer's) then, very soon the unfavorable light Boeing finds itself in, in terms of its 787 debacle, will shine brightly on Airbus.

Oct 19 09:23 AM