S&P Global: Boeing Co. remains on CreditWatch negative amid third quarter losses

S&P Global Ratings said today that Boeing Co.'s reported preliminary third-quarter losses were largely due to cost overruns and delays in new commercial and defense aircraft development. The company expects to record charges totaling $5 billion in the quarter and report a loss of about $6 billion. The charges are noncash initially but reflect reduction of cash flows in future years.

Boeing 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 and the effect on the company's productivity from the cuts are not yet clear. We believe the reduction will not include union employees. A strike by Boeing's machinist union over wages and benefits is in its fifth week. The union did not vote on a company offer that included a 30% raise over four years and certain other benefit improvements. Reinstatement of a pension plan, which the union is seeking, was not part of the offer.

Boeing reported $10.5 billion of cash and investments at the end of the third quarter, indicating that its cash usage for the period was about $2.1 billion, somewhat less than we anticipated. We estimated the strike costs the company more than $1 billion per month. Boeing decided not to continue with a new round of furlough after announcing its job cuts, which may result in higher near-term costs.

The largest component of the announced charges, $2.6 billion, relates to delays in its new widebody 777X plane. Boeing now expects to begin deliveries of its passenger model in 2026 and the freight version in 2028. The company paused test flights of the aircraft in August after it discovered flaws in its engine couplings. As a result, the delay is not entirely surprising though the cost is sizable. The charge relates to costs and delays needed to fix the problem, exacerbated by the ongoing strike. Boeing's commercial business will also record a charge related to winding down its 767 freighter, and the defense unit will see higher costs on KC-46A tanker plane, which is based on the 767 platform. The company faces additional costs on other fixed-price development defense contracts, the T-7A, MQ-25 and Commercial Crew. These programs have been a source of ongoing losses and their extended difficulties will delay the company's return to profitability.

Our 'BBB-' long-term issuer credit rating and CreditWatch placement with negative implications are not affected by the announcements. We still intend to resolve the CreditWatch placement by the end of the year. We could lower the rating if Boeing continues to experience operational challenges, the strike persists, aircraft delays continue, significant cash outflows continue, company doesn't raise sufficient capital to meet its upcoming needs in such a way that does not increase financial leverage.