Boeing Co. is on the verge of a significant financial setback as S&P Global Ratings considers downgrading the company’s credit rating to junk status.
This looming downgrade is driven by Boeing’s escalating cash requirements and the prolonged strike by machinists that has severely impacted the company’s production capabilities.
According to S&P, Boeing is expected to burn through around $10 billion in cash in 2024, and the company will likely need additional financing to cover operational costs and upcoming debt obligations.
“The strike puts Boeing’s recovery at risk,” S&P stated in a report.
The company remains vulnerable to higher-than-expected cash usage and elevated debt levels over the next year or two.
Boeing faces mounting debt and financial strain
Boeing faces significant debt repayments, with $4 billion maturing in 2025 and $8 billion due in 2026, according to Moody’s Ratings, which also warned last month that it may downgrade Boeing to junk status.
Companies rated as junk typically face higher borrowing costs, further adding to Boeing’s financial pressures.
The aerospace giant has been grappling with various challenges since 2019, compounded by persistent manufacturing issues.
This year, an additional burden has emerged in the form of a strike by 33,000 hourly factory workers, which has halted production across the Pacific Northwest.
S&P estimates the walkout is costing Boeing over $1 billion per month, even with cost-saving measures in place.
Boeing’s production delays and missed targets
Boeing’s production targets have also been affected by the strike.
The company’s goal of manufacturing 38 of its 737 Max jets per month, originally set for the end of 2024, is now expected to be delayed until mid-2025.
While S&P anticipates that Boeing will generate positive free cash flow next year, the agency warns that ongoing work stoppages and elevated costs could jeopardize those projections.
A Boeing spokesperson declined to comment on the potential downgrade or the ongoing negotiations with the union.
Union demands prolong stalemate
The strike is the result of a stalemate between Boeing and the International Association of Machinists and Aerospace Workers.
Union leaders have been pressing for a 40% wage increase and the reinstatement of a defined benefit pension plan, leading to protracted contract negotiations.
Both parties are currently engaged in mediation as they attempt to resolve the dispute.
A downgrade to junk status could have serious implications for Boeing’s future borrowing costs.
Even a single downgrade typically results in higher costs, while two or more can render a company ineligible for inclusion in major high-grade bond indexes, forcing investors to sell off their holdings and driving up the cost of future financing.
Ongoing manufacturing challenges
Boeing’s financial troubles are not solely the result of the current strike.
The company has been dealing with operational setbacks for years, including heightened regulatory scrutiny after a near-disaster in January when a door-size panel detached from a 737 Max 9 mid-flight.
This incident forced Boeing to slow down production of its 737 Max jets, its largest revenue generator.
Production has now been at a standstill for over three weeks due to the strike, severely impacting the company’s financial position.
Downgrade threat looms
As the strike drags on, the possibility of a credit rating downgrade becomes increasingly likely. S&P currently rates Boeing at BBB-, the lowest investment-grade rating.
A further downgrade would push the company into junk territory, making its financial recovery even more challenging.
With no immediate resolution to the strike in sight, Boeing’s financial situation remains precarious, and the company’s future hinges on the outcome of ongoing contract negotiations and its ability to restore production to pre-strike levels.
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