Moody’s and S&P Question Boeing’s Ability to Meet Year-End Production Targets, Reports Reuters

By Allison Lampert and Rajesh Kumar Singh

Boeing is likely to fall short of its production target for the 737 MAX jet in 2024, according to analysts from Moody’s and S&P, who indicate that the company is facing challenges as it seeks to ramp up output of its top-selling aircraft.

The aerospace giant aims to achieve a monthly production rate of 38 MAX jets by the end of 2024, a significant increase from the 25 jets produced monthly as of July. However, both Moody’s and S&P suggest that achieving this target may be delayed until 2025, citing potential risks such as labor disruptions at Boeing’s manufacturing facilities in the Seattle area. Fortunately for Boeing, there is no imminent threat of a credit rating downgrade into junk territory at this time, according to the rating agencies.

Jonathan Root, the lead Boeing analyst at Moody’s, estimates that the company will likely conclude 2024 with a production rate of 32 MAX jets per month, reaching the full target sometime in the latter half of 2025. "We remain in a ‘show me’ state of mind," he noted.

Production and delivery of the MAX jets, which are closely monitored by investors and airlines, have experienced slowdowns following a mid-air incident involving a new 737 MAX 9 that unveiled enduring quality control issues within the manufacturer. To enhance production quality, Boeing has reduced output, which has negatively impacted its cash flow. In the first half of 2024, the company reported a cash burn of approximately $8.3 billion and projects negative free cash flow for the year, placing further strain on its financial standing.

"There are several risks associated with reaching that figure (38), including labor negotiations and the company’s previous record of not meeting targets," remarked S&P Global Ratings aerospace director Ben Tsocanos. He emphasized the necessity of increasing and stabilizing MAX production to generate free cash flow, which is crucial for maintaining Boeing’s credit rating.

Both S&P and Moody’s have rated Boeing just above junk status. In a recent statement regarding production, Boeing referred to comments made by its finance chief, who indicated that output is expected to increase in the latter half of 2024 to meet the goal of 38 planes per month by the end of the year.

New CEO Kelly Ortberg has not yet publicly outlined any production strategies. Analysts at William Blair suggest that the new CEO might opt to lower the production target to place a stronger emphasis on quality.

Spirit AeroSystems plays a critical role in supporting increased production, producing the fuselage for the 737. Spirit delivered 27 fuselages to Boeing during the June quarter, despite a capability of producing 31 each month. Since March, Boeing began inspecting newly made fuselages at Spirit’s Wichita factory, with the vetting process taking longer than anticipated, according to an industry source.

Amid ongoing uncertainties surrounding Boeing’s aircraft deliveries, airlines are becoming more cautious about scheduling. Allegiant, a low-cost U.S. airline and Boeing customer, expressed expectations for a "slower delivery cadence" from the manufacturer in 2025 and 2026.

When Allegiant placed an order for 50 737 MAX jets in 2022—preferring Boeing over traditional supplier Airbus—it anticipated receiving 10 aircraft in 2023, 24 in 2024, and 16 in 2025. However, the airline is still awaiting its first MAX jet, which is now expected to arrive in September, according to a recent statement.