Moody’s Investor Services (MCO) has downgraded Boeing Co.’s (BA) rating outlook to “negative” from “stable”. The major reason for the downgrade was the delay in the airplane maker’s new 787 series, besides other setbacks that had hurt its financial flexibility.

Pitted against Airbus’s A319 aircraft, Boeing’s 787 series is plagued by delays. The inaugural test flight at the end of fiscal 2009 is more than two years behind the original delivery schedule. The company has already deferred the inaugural delivery of the 787 series aircraft five times.

Boeing has witnessed falling orders in the recent times for its commercial planes on account of tepid demand for air travel and cargo services. Already, a slew of commercial airlines have cancelled or deferred their fleet additions. Boeing has cut costs and announced reduction in its workforce along with scaling back production of some aircrafts. Moody’s estimates a 20% production cut would affect Boeing’s operating profit by around $1 billion per year. Boeing has nearly doubled its corporate debt this year due to the acquisition of 787-related businesses, the payout under guaranty and the ramp-up of inventory levels.

Headquartered in Chicago, Boeing is the world’s largest manufacturer of commercial jet liners and military aerospace products (based on total sales). Boeing designs and produces commercial airplanes, defense systems, and civil and defense space systems. It is also the largest NASA contractor. Non-airplane products include helicopters, electronic and defense systems, missiles, satellites, rocket engines, launch vehicles, and advanced information and communication systems.

We maintain our market Neutral recommendation on the shares.

Zacks Investment Research
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