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Grounded

11 March 2019 by jbchevrel

Boeing (BA) 5y CDS was the worst-performing member of CDX IG, wider by 10bp, after the second deadly crash of one of its new planes in Africa. In parallel, the stock opened -12.5% before paring half of that move (still +23% YTD). The 737 Max plane is the newest/bigger version of the 737 (itself c1/3 of BA Op. Profit). Countries such as China and Indonesia, ordered companies to keep these planes inactive. We are talking of about 100 jets in China alone. This development comes at a crucial juncture, as analysts expected BA to enjoy a fast-growing EPS in the years to come (20.2 in ‘19 23.6 in ‘20 from current 17.9), after strong investments in CapEx. BA is probably not a credit story in the short term, it sits on c$9B of cash, short-term debt is c$3B, but history shows that industrial accidents can quickly dampen credit outlook. For instance, once VW admitted they cheated on emissions, back in September 2015, its 5y CDS went from c75bp to c300bp.