January 23, 2013 / 10:01 PM / in 5 years

TEXT - Fitch says Boeing's guarantee of Boeing Cap does not affect ratings

Jan 23 - Fitch Rating's long-term 'A' and 'F-1' short-term Issuer Default
Ratings (IDRs) for The Boeing Company (BA) are not affected by BA's new
guarantee of Boeing Capital Corporation's (BCC) outstanding public debt.  A full
list of ratings is included at the end of this release.  The Rating Outlook is
Stable. The ratings cover approximately $10.5 billion of debt ($7.9 billion at
BA and $2.6 billion at BCC).

Earlier today BA announced that BCC will suspend its separate reporting 
obligations with the U.S. Securities and Exchange Commission (SEC), and BCC will
no longer file reports with the SEC as of the first quarter of 2013.  BA also 
announced the termination of its existing support agreement with BCC and the 
establishment of a guarantee of BCC's outstanding public debt.  Fitch does not 
believe these changes, including the debt guarantee, materially affect BA's 
consolidated credit profile and ratings, as discussed below.

Boeing Capital De-Registration and Strategic Shift

A main rationale for de-registering BCC is to reduce costs and improve 
efficiency by eliminating the burden of filing a full set of documents with the 

In addition, Fitch believes the changes reflect BCC's successful strategic shift
which began in late 2003 to reduce its emphasis on portfolio growth and increase
its focus on facilitating third-party financing for its customers.  

This strategic shift can be seen in BCC's financial profile over the past ten 
years.  Since the end of 2002 BCC's assets (net of cash) have declined from 
approximately $12 billion to $4 billion and debt has gone from $9.5 billion to 
$2.6 billion.  BCC has not required net capital contributions from BA since 
2003, and BCC has paid more than $2.5 billion in dividends to BA in the past 
nine years.  As of the end of September, BCC's assets net of cash accounted for 
only 5% of BA's consolidated assets. BCC financed none of BA's commercial 
airplane deliveries in the first nine months of 2012, although it looks like 
there were three leases in the fourth quarter.

Credit Impact of Boeing's Guarantee of BCC's Debt

For several reasons, BA's guarantee of BCC's outstanding public debt is not a 
material credit issue.  The first reason is the steady reduction in BCC's size 
and its strategic shift away from portfolio growth.  

In addition, the substance of the BA-BCC relationship and the level of risk 
residing with BA will change only modestly.  Consistent with Fitch's ratings 
linkages criteria, BCC's ratings have been linked with BA's ratings as a result 
of factors such as the support agreement, close operational ties, and shared 
credit facilities (under which BCC's borrowings would have been guaranteed by 
BA).  Importantly, BA also provides $1.5 billion (at Sept. 30, 2012) of asset 
guarantees covering $1.86 billion of BCC's portfolio, mostly 717 aircraft.  
Because of these factors, BA has been responsible for much of the risk at BCC, 
and this will change only modestly because of the full guarantee of BCC's debt. 

Finally, BCC's portfolio quality has improved over the last year because 
investment grade-rated Southwest Airlines purchased BCC's largest customer, 
AirTran, and subsequently guaranteed AirTran's leases with BCC.  Southwest, 
AirTran, and BCC also reached an agreement with Delta Airlines to sublease 88 of
AirTran's 717s, of which 78 are categorized as leases in BCC's portfolio 
(representing 30% of BCC's portfolio).  This sublease agreement matches 
AirTran's current leases, and then extends for seven additional years.  

Analytical Framework

Fitch previously focused its credit analysis on BA's financial results which 
excluded BCC by accounting for it as an equity investment.  Because BA will now 
guarantee BCC's outstanding public debt, going forward Fitch's analysis will 
focus on consolidated financial results, augmented with some credit metrics 
using 'core debt' related to the company's manufacturing operations. This 'core 
debt' approach takes into account the different business profiles of BA's 
manufacturing operations and financial operations.  

What Could Trigger a Rating Action

Fitch recently affirmed the ratings for BA and BCC.  Please see the press 
release 'Fitch Affirms Boeing's Ratings at 'A/F1'; Outlook Stable' dated Jan. 
17, 2013.  

There could be a negative rating action if the current issues with the 787 
program are not resolved in a timely manner or if the problems result in 
material negative developments with the 787 program leading to delivery delays, 
order cancellations, large additional costs, or inventory write-downs.  Large 
acquisitions, although not anticipated, could also negatively affect the 
ratings, as could a shift in the cash deployment strategy away from debt 
reduction.  Given the risks with the 787 program, a positive rating action is 
not likely in 2013.

Fitch rates BA and BCC as follows:  

--Long-term IDR at 'A'; 
--Senior unsecured debt at 'A';
--Bank facilities at 'A';
--Short-term IDR at 'F1';
--Commercial paper programs at 'F1'.
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