MAX prompts Moody's to downgrade 2020 defense and aerospace outlook

The Boeing MAX crisis has prompted Moody’s Investors Service to downgrade its 2020 aerospace and defense industry global outlook from positive to stable. The move comes after the US aerospace giant’s decision to suspend MAX production from January 2020 because of uncertainty about the plane’s return to service. It also coincided with an announcement Monday by the Boeing board that it had axed CEO Dennis Muilenburg in an attempt to restore public and industry confidence. READ: Boeing CEO ousted over MAX crisis. Moody’s expects the sector’s revenues, earnings and cash flows to shrink as a result of the decision, with heightened operational uncertainty. It said the production halt would hit the sector's supply chain adversely. The ratings agency pointed to aircraft component manufacturer Spirit AeroSystems, the ratings for which are currently under review for downgrade. Spirit announced December 20, that Boeing has directed it to cease deliveries of the 737 MAX, components for which accounts for half its annual revenue. Moody's noted this was unexpected and signaled a transition of heightened financial and operational risk that had previously been borne by Boeing since the groundings in March, 2019. "Suspended production of the 737 MAX will have far-reaching adverse consequences for the broad aerospace and defense supply chain, including an expectation of shrinking revenues, earnings and cash flows, and a slowdown of the operating profit growth we had previously anticipated for 2020," said Moody’s senior vice president Martin Hallmark. Moody's said it believed Boeing and/or the plane-maker's tier 1 suppliers would provide some level of support to companies exposed in the supply chain. It also acknowledged that the industry continued to benefit from a multi-year order book for large commercial aircraft, and growing defense spending. It remains unclear when the 737 MAX, grounded after two fatal accidents, will get back in the air but some expect re-certification by the US Federal Aviation Administration may not happen until the end of the first quarter of calendar 2020. The delays have prompted American Airlines to take the plane out of its schedule until April while United has removed it until June. READ: United removes 737 MAX from schedule until June.