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Boeing debt rating cut
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December 18, 2001: 12:49 p.m. ET
Moody's cites weak outlook for commercial jets; Southwest moves up deliveries.
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NEW YORK (CNN/Money) - Boeing Co. is seeing its debt rating lowered just as one of financial healthiest customers, Southwest Airlines, speeds up its plans for new aircraft deliveries.
Boeing's long-term senior unsecured debt rating was lowered to "A2" from "A1" by debt-rating service Moody's on Monday, which cited a "materially weakened commercial aerospace market," since the Sept. 11 terrorist attack.
Moody's competitor Standard & Poor's placed Boeing (BA: down $0.03 to $37.03, Research, Estimates) on a credit watch with negative implications on Sept. 21, meaning it was weighing a possible downgrade as well. Roman Szuper, S&P's debt analyst who follows Boeing, said Tuesday he hoped to have a final decision in the next few weeks.
A lower debt rating could raise the cost of borrowing for the world's largest aircraft maker, which in addition to the downturn in commercial jets lost the contract to build the U.S. military's lucrative Joint Strike Fighter jet to Lockheed Martin Corp. (LMT: down $0.65 to $45.89, Research, Estimates)
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Southwest will take delivery of two Boeing 737-700 jets in February, instead of waiting until April as it planned to do in the immediate wake of the Sept. 11 attack. | |
"The company has taken aggressive action to respond to the difficult business environment, and improved performance from Boeing's defense and space units should also provide an important offset," said Moody's report. "Nevertheless, Moody's believes that Boeing's consolidated earnings and cash flows will be under pressure and that the potential for additional portfolio growth at Boeing Capital Corp. will utilize significant capital, affecting the overall enterprise balance sheet and risk profile."
Still Boeing got some good news from discount carrier Southwest Airlines (LUV: up $0.12 to $18.96, Research, Estimates), the nation's seventh largest airline. The airline, which is the only major carrier not to cut the size of its fleet or staff since the Sept. 11 attack, said it will now take delivery of two new Boeing 737-700 jets in February rather than April, as was its original plan in the wake of the attack.
"We've been pleasantly surprised by traffic and how it came back," said Southwest spokeswoman Beth Harbin. "We decided we can take these two new planes a little earlier than planned."
Southwest traffic is still off slightly from year-ago levels. Paying passengers flew 1.2 percent fewer miles on Southwest in November, despite a 6.9 percent increase in capacity during the same period. But other major airlines are seeing traffic off nearly 20 percent from year-earlier levels.
The airline had originally planned to take the planes in late September and October. A consortium of banks instead purchased the jets and has held them since then for Southwest. Harbin said the airline will save some costs by taking the planes sooner than its recent plans.
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The airline is going ahead with pre-attack plans to retire three of its older jets, 737-200s, by the end of this year. It will also retire three planes in the first half of next year, while taking a total of four new deliveries during that time, which should bring its fleet to 356 jets by the end of the second quarter.
The Southwest move to add jets, while good news, isn't enough to change the immediate outlook for Boeing, said S&P's Szuper.
"That's a minor item in the overall picture," he said. 
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