Boeing Co. ratings affirmed on greater-than-expected equity issuance; remains on CreditWatch

S&P Global Ratings today took the rating actions listed above.

Boeing's equity issuance exceeded our estimates and temporarily mitigates our view of the financial risk associated with large prospective cash flow deficits.

The $24.3 billion proceeds allow the company to maintain a cash balance above its $10 billion target despite an expected $14 billion outflow in 2024, fund its likely cash use in the first half of 2025 due to seasonal working capital build, and cover the approximately $4 billion of debt maturities due in April 2025. We previously expected Boeing would generate sizable cash outflows in 2024 prior to the announcement of the strike, but not to this extent. We also now estimate the company faces a cash outflow in the low-single digit billions for the full year 2025, compared to our previous expectation of positive free cash flow. The cost of the strike, delays in recovery in aircraft production, and a buildup of working capital are key contributors the unfavorable change. However, we view the proceeds from the unexpectedly large equity issuance as supportive of credit quality due to the company's willingness and ability to raise proceeds to cover future cash outflows without incurring incremental debt.

The company faces a range of factors that will contribute to a cash outflow next year, with continuing operating uncertainty that could further weaken its financial position.

We believe Boeing remains exposed to risks that could delay the recovery in its cash flow and credit measures to levels we view as commensurate with its issuer credit rating. The ongoing strike is a notable headwind but post-strike operational execution remains a key source of uncertainty. Union members are expected to vote shortly on the company's latest contract offer, which includes a 38% wage increase over four year, which approaches the union's original target of 40%.

The company was producing Max planes in the high-20s per month before the strike and appeared to be on track to achieve its goal of increasing production to 38 by the end of 2024. We now expect this target will likely be pushed into the second half of next year, although this is speculative, due to the strike continuing. The delay in Max production recovery will result in elevated costs and continuing increase in working capital. Estimated inventory buildup related to the delayed start of deliveries of the 777X aircraft alone will exceed $3 billion next year. Boeing also recorded $5 billion of charges in the third quarter largely due to cost overruns and delays in new commercial and defense aircraft development. The charges are noncash initially but reflect reduction of cash flows beginning next year.

The company concurrently announced plans to reduce its workforce by approximately 10%, representing about 17,000 employees. We assume the cuts will take place in 2025 and will result in a significant reduction in costs though there will likely be upfront expenses. In addition, the acquisition of Spirit AeroSystems, which is on track to close next year, should yield long-term supply-chain efficiencies but may involve integration costs initially. We incorporate these factors into our forecast of a cash outflow next year in the low-single digit billion. We view the company's ability to increase and stabilize its aircraft production volumes as necessary for it to begin generating free cash flow and strengthen credit measures.

We view Boeing's business as incorporating substantial operating leverage which, to this point, has afforded key support for our rating.

The company can generate significant cash flow after next year if operational performance improves, including increasing aircraft production at consistently higher rates and maintaining consistently higher quality levels. This cash-generating potential, coupled with the effect of the equity raise on the balance sheet, underpins our estimate for Boeing to generate credit measures consistent with the rating in 2026, including a fund from operations (FFO)-to-debt ratio above our 20% and free operating cash flow (FOCF)-to-debt ratio above 10%. However, we believe the company remains exposed to higher-than-expected cash usage if the strike persists, operations continue to underperform, approval of new aircraft models is delayed Boeing experiences increased costs, or if working capital buildup exceeds expectations.

The CreditWatch with negative implications placement reflects our view that we could lower our ratings on Boeing if the strike continues or if we further lower our estimates for the company's cash flow generation and credit measures. In this scenario, we would expect a longer-than-expected recovery in aircraft production and deliveries relative to our current estimates, resulting in larger-than-expected cash outflows than currently anticipated. We intend to resolve the CreditWatch placement by early next year.