Fitch: Cash Impact from 787 & Sea Launch Filing Likely Manageable for Boeing

Business Wire, June 23, 2009

NEW YORK -- Fitch Ratings estimates that the cash flow impact on The Boeing Company (BA) from today's 787 delay announcement and yesterday's Sea Launch Chapter 11 filing is manageable given BA's liquidity position and expected cash generation in 2009 and 2010. Fitch considers the risks from these events to be incorporated into the existing Negative Outlook on BA's ratings, and there are no rating changes at this time. However, if the new 787 delay has an impact of greater than three months on the overall program schedule, Fitch could review the ratings for downgrade.

The 787's impact on BA's cash flow is Fitch's key credit concern related to the program, particularly the timing of deliveries, which will affect inventories. Although BA will not be able to provide a new 787 schedule for several weeks, Fitch believes that the additional delay will not be material enough to significantly reduce current cash flow estimates in 2009 and 2010. While first flight is being delayed, some testing and production will continue, partially mitigating the impact of the delay on the eventual start of deliveries.

Sea Launch Company, of which BA is a 40% partner, filed for bankruptcy on Monday. BA provides various credit guarantees to the venture. These guarantees totaled approximately $450 million at the end of 2008. Fitch estimates that the worst-case cash flow scenario for BA is an outflow of $450 million, although some of the other partners in the venture will likely be responsible for some of the guarantees, and there could be some recovery from the assets of the company. The timing of any cash outflows is uncertain.

The 787 program has the potential to help the company's credit profile in the long run given its outstanding market acceptance, but Fitch is cautious at this point given that BA still needs to achieve first flight, certification, and a successful production ramp-up. BA will be building 787s through the flight testing program, exposing the company to the risk of reworking some aircraft if problems are discovered during the flight tests. As of the end of May BA had received 866 orders for the 787, which Fitch estimates could be worth up to $100 billion of BA's $266 billion commercial backlog, illustrating the significance of the program.

If BA can limit the length of the 787 delay, Fitch believes that a rating benefit would be the cash generation from inventory reduction as deliveries begin, as well as a likely decrease in research and development expense, which will aid BA's margins. In addition, if 787 deliveries start in 2010, they will help offset possible delivery declines of other models, although reported operating margins at Boeing Commercial Airplanes (BCA) might be diluted.

At the end of April, Fitch revised BA's Rating Outlook to Negative from Stable. The revision reflected Fitch's higher level of concern regarding several issues, including the global recession's impact on the commercial aerospace industry, increasing pressure on Department of Defense (DoD) budgets, the potential for further delays in the 787 program, the health of the aircraft finance market, and BA's buildup of inventories in 2008, which significantly reduced the company's liquidity position.

Additional rating concerns include the susceptibility of the commercial aerospace industry to shocks such as terrorism and disease; portfolio concentration at Boeing Capital Corporation (BCC); margin levels that are low for the rating category; periodic labor disruptions; and the performance of some programs at both BCA and Integrated Defense Systems. The pension deficit and several litigation actions are also potential concerns. The outbreak of swine flu was not a key driver of the Outlook revision, but it contributed to concerns about the commercial aerospace industry.

BA's debt ratings are supported by the company's balanced business portfolio (approximately 50% defense and 50% commercial), financial flexibility, competitive positions in both of its main business lines, large backlog, high levels of defense spending, and solid credit metrics. BA's liquidity position and favorable debt maturity schedule also support the ratings. Fitch believes that BA has evolved into a more diverse and lower-risk company than it was at the beginning of the last aerospace downcycle that began in late 2001.

The following are Fitch's current ratings for BA and BCC:

--Long-term Issuer Default Rating (IDR) 'A ';

--Senior unsecured debt 'A ';

--Bank facilities 'A ';

--Short-term IDR 'F1';

--Commercial paper 'F1'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.