Rating agencies expect Boeing to miss year-end production targets

Boeing is likely to miss a 737 MAX jet production target in 2024, analysts at ratings agencies Moody’s and S&P Global Ratings told Reuters, saying that the company faces challenges as it ramps up its strongest-selling plane.

The US aerospace giant’s goal is to produce 38 MAX jets a month by the end of 2024, up from 25 jets a month in July. But Moody’s and S&P said that goal may not be reached until 2025 due to risks such as possible labour disruptions at the plane maker’s facilities in the Seattle area. Boeing, however, faces no immediate risk of a credit downgrade that would drop its rating to junk levels, the two ratings agencies said on Friday.

Jonathan Root, lead Boeing analyst at Moody’s, assumes the plane maker will end 2024 producing 32 MAX jets a month, and reach the target of 38 in the second half of 2025. “We remain in a ‘show me’ state of mind,” he said. MAX production and deliveries, which are closely watched by investors and airlines, mostly slowed after a January 5 midair panel blowout on a new 737 MAX 9 that exposed long-standing quality-control problems at the jet maker.

Boeing slowed output so it could improve production quality, but the decline in output and deliveries has taken a toll on cash flow. It burnt about $8.3bn in cash in the first half of 2024 and expects free cash flow to be negative this year, burdening its balance sheet.

“We see risks to reaching that number (38), including labour negotiations and the company’s history of underdelivering relative to targets,” said Ben Tsocanos, aerospace director at S&P . “We view increasing and stabilising MAX production as necessary to generating free cash flow, which is ultimately what we care about to maintain the rating.”

Both S&P and Moody’s rate Boeing one notch above junk status.

In response to a request for comment, Boeing referred to its finance chief’s recent remarks saying that output was expected to rise in the second half of 2024 to hit 38 planes a month by year-end.

New CEO Kelly Ortberg has yet to publicly discuss any production plans for the company. Analysts at William Blair said the new CEO may lower the production target to prioritise quality. Spirit AeroSystems, which is set to be acquired by Boeing, has the leading role in supporting increased output, Root said. The company produces the 737 fuselage that is used to make the finished planes at Boeing’s facilities in Washington state.

Spirit shipped 27 fuselages to Boeing in the June quarter, despite producing 31 a month. Since March, Boeing has been first inspecting the new fuselages at Spirit’s factory in Wichita, Kansas, and the vetting process has taken longer than expected, an industry source familiar with the matter said.

Meanwhile, lingering uncertainty about Boeing’s aircraft deliveries has airlines more cautious in planning their schedules. Low-cost US carrier Allegiant, a Boeing customer, last month said it expected a “slower delivery cadence” from the plane maker in 2025-26.

When Allegiant placed an order for 50 737 MAX planes in 2022, rejecting offers from traditional supplier Airbus, it expected to take delivery of 10 of the jets in 2023, 24 in 2024 and 16 in 2025. However, it is still waiting for its first MAX aircraft. The plane is now expected in September, the airline said last month.

Reuters