Jan 14, 2020

The fallout from Boeing's 737 MAX suspension could have a big impact

Boeing 737 MAX aircrafts on Oct. 23, 2019. Photo: David Ryder/Getty Images

After it laid off 2,800 employees last week, citing "ongoing uncertainty" related to Boeing’s 737 MAX jet, Moody's downgraded the secured debt of airplane parts supplier Spirit AeroSystems and handed it a Ba2-PD Probability of Default rating.

What it means: Wichita, Kansas-based Spirit gets about half of its annual revenue from supplying parts for the MAX, which has been grounded for months following two fatal crashes and remains in a production halt indefinitely.

  • Eoin Roche, Moody's lead analyst for Spirit, said he expects "Spirit's liquidity profile will quickly and materially erode" unless something drastic changes, and any developments that could help salvage it "remain largely out of the company's control."
  • Spirit's stock fell nearly 3% on Monday and has dropped almost 25% in the past two months.

Why it matters: This is the latest piece of fallout from Boeing's two crashes, showing how the production freeze could have ramifications throughout the manufacturing industry and the U.S. economy.

The big picture: Boeing's decision to suspend 737 MAX production could hit dozens of companies, Moody's warned in a separate note on Friday, identifying 24 firms with exposure to Boeing and its supply chain and placing four on review for downgrades.

  • "Several companies face potentially significant earnings and cash flow pressures that could erode their liquidity in relatively short order."
  • The decision to suspend production indefinitely means Boeing will share the financial burden of the crashes with its suppliers "on a fairly immediate basis, heightening operational disruption and financial risk for all."

Don't forget: Indonesia’s Lion Air considered putting its pilots through simulator training in 2017 before flying the 737 MAX but abandoned the idea after Boeing convinced them it was unnecessary, Bloomberg reported Monday.

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Boeing gets a bailout, but economy still faces trouble

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Boeing secured commitments of over $12 billion in financing from more than a dozen banks, CNBC reported Monday, citing unnamed sources.

Why it matters: The bailout will help Boeing maintain a healthier cash position as it deals with the fallout from a mandatory production stoppage of its 737 MAX jet after two crashes that killed hundreds of people.

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CNBC: Boeing to take $10 billion loan to cover 737 MAX fallout

Workers walking into a 737 factory on Dec. 16. Photo: Stephen Brashear/Getty Images

Boeing is in talks to borrow $10 billion or more, as the company copes with rising compensation claims from two fatal 737 Max crashes in the last two years, CNBC reports.

Why it matters: Analysts believe Boeing's expenditures could amount to more than $15 billion in the first half of 2020, according to the Wall Street Journal.

Go deeperArrowJan 20, 2020

Justice is elusive for Boeing's 346 plane crash victims

Illustration: Aïda Amer/Axios

Boeing is navigating how to handle the $100 million compensation fund it set up for the families of crash victims, even as a pledge by its former CEO to fatten the fund seems uncertain.

Why it matters: Boeing is pulling out all stops to appease Wall Street over the grounding of its 737 MAX, but it is saying little about the issue of restitution for the families of the hundreds who died due to faulty technology onboard its flagship plane.