The Boeing Company (BA), the world’s largest aerospace company, designs and manufactures commercial jetliners and defense aircraft, as well as systems, and weapons, along with space and security equipment, observes Marty Fridson, editor of Forbes/Fridson Income Securities Investor.
Boeing supports airline carriers worldwide, including U.S. and allied government customers. Credit ratings were lowered by Moody’s to Baa1 from A3 in December 2019, and then to Baa2 in April 2020.
Credit ratings were also cut by S&P, three times since year-end 2019, from A- to BBB-. The downgrades reflect substantially weaker cash flows, due to extended grounding of the 737 MAX, and continued pandemic challenges.
With airline traffic sharply lower, new orders down and outstanding orders canceled, BA will need to focus more sharply on its defense business.
The company reported a 2Q 2020 adjusted operating loss of $3.32 billion or ($4.79) per share, significantly missing analysts’ ($2.54) estimates. Revenue of $11.81 billion also missed expectations, falling 25% from a year earlier.
Financial results continue to be significantly affected by COVID-19 and the 737 MAX grounding. Credit measures are weak, but could gain some traction in 2021, assuming 737 MAX deliveries resume, a tall order at this time.
BA recently issued more than $10 billion in notes of various maturities that saw strong demand. Proceeds from the offerings are to be used to bolster liquidity and fund the company’s large cash outflows this year.
We are recommending Boeing's 5.15% Senior Notes (CUSIP 097023CY9); due 05/01/30; the notes have a current yield of 3.54%. These senior notes are a suitable investment for medium-to-high risk tax-deferred portfolios. Interest payments are taxed as ordinary income. This issue should be bought below $116.00.
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