S&P cuts Boeing Co ratings
01:57 PM ET 12/03/98
The downgrades reflect Boeing's reduced prospects for
earnings and cash flow generation, following announcement of
lower production rates for most of its jetliners.
Serious economic and financial difficulties in Asia have
significantly reduced demand for the firm's airplanes from
airlines serving that important region.
The greatest impact is on wide-body aircraft, especially
Boeing's most profitable 747 model.
A material decline in sales in 2000 would end the current
strong delivery upcycle in the commercial aerospace industry,
from which Boeing did not profit materially because of
production problems.
Reduced demand for airplanes coincides with a stronger
competitive position by its rival, Airbus Industrie, and
Boeing's shift to a less conservative financial policy than
maintained historically.
Those factors make it unlikely for the company to restore
credit protection measures associated with the previous
ratings.
Ratings on Boeing are supported by the firm's leading
position in commercial aircraft manufacturing, favorable
long-term fundamentals for that business, a leading position
in defense and space, relatively low debt usage, sizable cash
balances, and anticipated improvements in financial
performance.
OUTLOOK (BOEING CO. AND MCDONNELL DOUGLAS CORP.): STABLE
Ongoing efforts to improve efficiencies, progress made to
resolve production problems in the commercial airplane segment,
stabilization of the defense procurement budget, and consequent
expectation of substantial cash flow generation should
maintain credit quality.
Corrective measures should offset the highly competitive,
cyclical, and capital-intensive nature of the commercial
aircraft market, very competitive conditions in the defense and
space sectors, and ongoing actions to enhance shareholder
value.
OUTLOOK (BOEING CAPITAL CORP.): DEVELOPING
Ratings could be raised if the unit is retained as a
continuing operation of Boeing Co. or if it is sold to a higher
rated entity. Ratings could be lowered if the unit is divested
to a weaker entity, Standard & Poor's said.
OUTSTANDING RATINGS LOWERED
Rating
To From
Boeing Co.
Corporate credit rating AA-/A-1+ AA/A-1+
Senior unsecured debt AA- AA
Boeing Capital Corp.
Counterparty credit rating A+/A-1 AA-/A-1+
Senior unsecured debt A+ AA-
Subordinated debt A A+
Commercial paper A-1 A-1+
McDonnell Douglas Corp.
Corporate credit rating AA- AA
Senior unsecured debt AA- AA
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