Boeing Avoids Junk Status as S&P Cites Cash Reserves, Trade Risks Persist

Boeing (BA.US) has managed to avoid a downgrade to junk status, but trade risks remain a significant concern. Standard & Poor's Global Ratings has decided not to lower Boeing's debt rating, citing the company's substantial cash reserves and other factors that provide a buffer against future challenges. This decision comes after a challenging 2024 for Boeing, during which the company faced significant operational hurdles. The first quarter of this year saw Boeing's performance exceed analyst expectations, marking a positive turnaround. In October 2024, Boeing raised approximately $240 billion in equity financing, and a month later, the machinists' union voted to end a strike that had severely impacted the company's factories. These actions have clarified Boeing's path toward increasing aircraft production, a crucial step in restoring its financial health following a series of design and manufacturing issues that led to aircraft groundings and increased regulatory scrutiny.

Standard & Poor's has indicated that it is no longer actively considering a downgrade for Boeing. The company's current rating is BBB-, just one level above junk status. In a statement released on Monday, Standard & Poor's noted that Boeing appears to be gradually recovering from the production halt caused by the 2024 strike and long-standing manufacturing quality issues. A downgrade would increase Boeing's borrowing costs, a scenario the company is keen to avoid.

Boeing has been somewhat insulated from the global economic turmoil caused by tariffs due to the accumulation of a large inventory of components during the labor disputes of last year. However, the company faces significant trade risks, particularly in China, where it has been reported that local airlines have been instructed to halt the acceptance of new Boeing aircraft deliveries. Boeing has stated that it will seek alternative buyers for the already ordered aircraft. Despite this, Standard & Poor's has warned that trade uncertainties could spread beyond China, posing risks to additional deliveries this year.

Among the three major rating agencies, Boeing's rating is at the lowest investment grade level. Moody's confirmed this rating in January and removed Boeing from its downgrade watchlist, while Fitch has not conducted a rating review since the strike began. Although Standard & Poor's has made recent adjustments, it maintains a negative outlook on Boeing's rating, indicating a potential for downgrade in the medium term.