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Moody's sees bright future for Boeing and 737 Max

Boeing and its troubled 737 Max will recover from the crisis engulfing the company thanks to Boeing's fundamental underlying financial strength and unceasing demand for narrowbody aircraft, according to a new report from Moody's Investors Service.

"We expect a full recovery of the company's currently strong financial profile as underscored by key credit metrics no later than early 2021 – as long as the grounding ends in 2019," says Moody's in a 31 May report.

The report paints a positive picture for the longer-term health of Chicago-based Boeing, which has struggled following two 737 Max crashes and the subsequent grounding, now well into a third month.

The report even suggests regulators could lift the 737 Max's grounding "by the end of July, if not the end of June" – though other observers with knowledge of efforts to re-certify the Max describe that timeline as optimistic.

"We believe the effects of the Max grounding on Boeing's financials will be temporary. The company's pre-grounding financials were very strong," Moody's says.

Indeed, Boeing's 2018 profit jumped 24% year-on-year to $10.5 billion, with revenue up 8% to a record $101 billion. In the first quarter of this year, however, profit slipped 15% year-on-year to $2.1 billion, and Boeing said the 737 Max grounding will add $1 billion to that programme's costs.

Moody's says estimating how much money the grounding will actually cost Boeing will be "difficult" and "likely never be fully disclosed".

Boeing's additional costs are likely to stem from work related to engineering, certification and training, plus the expense of reducing 737 production. Boeing also faces legal costs and will likely plow money into marketing campaigns once the 737 Max is cleared to takeoff again.

Moody's notes that Boeing has had "few, if any" order cancellations as a result of the Max issues.

"We do not anticipate wholesale cancellations of orders," Moody's says. "Fleet planning is long-term in nature, and switching manufacturers can be very costly because operating mixed fleets – particularly if in small numbers – increases airline's cost bases, reduces maintenance economies of scale and increases investment in spare engines and spare parts."

Also, customers that might consider cancelling orders will have little luck getting aircraft from the only other prime narrowbody aircraft maker, Airbus, as Toulouse had a roughly eight-year A320neo backlog.

"The wait time is just too long," Moody's says.

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