What the Max 9 mess means for Boeing’s debt

Not all aeroplane malfunctions can take more than 8 per cent off of two companies’ market capitalisations in a day.

Boeing isn’t just any manufacturer, however; it’s been less than five years after the extended grounding of the 737 Max.

The Boeing aircraft that malfunctioned was a relatively new plane, the Max 9, as mainFT reports. And this was an unusually nightmarish event: an Alaska Airlines flight was forced to land after an unused emergency door blew off the plane. The seats next to the door just happened to be empty.

The fallout has also affected Spirit AeroSystems, a major Boeing supplier that installs the MAX 9’s “door plug” (ie the unused emergency door). Shares of Boeing and Spirit closed with declines of 8 per cent and 11 per cent, respectively.

But it may not be as easy to blame Spirit as Boeing bulls would hope. Here’s how CreditSights analysts describe their understanding of the manufacturing process:

While Spirit AeroSystems installs the door plug into the fuselage before shipping 737 MAX 9s to Boeing, we believe that Boeing opens the plug up and uses the door for interior installation before resealing for final delivery. The specifics around these final details should become available in the coming days.

While that’s surely not an assignment of blame, it does provide more reason to look at the hypothetical cost of any pause in Max 9 deliveries while the root cause of the malfunction is sorted out.

CreditSights estimates that the manufacturer was on track to ship 70 Max 9s this year. If all 70 (estimated) shipments are put on hold for the entire year, that could lead to a $2.3bn shortfall in free cash flow. If half of them aren’t delivered this year, that would take a $1.1bn bite out of projected FCF.

And if the FAA puts greater scrutiny on (or declines to give exemptions to) Boeing for its not-yet-certified Max 7s and Max 10s after the Alaska Airlines incident, that could take another $1bn out of projected free cash flow, CreditSights says.

From the analysts:

If 2024 free cash flow comes in around $4bn, we can safely exclude debt liability management exercises from 2024 as Boeing hoards cash to address its $5bn of 1Q24 maturities ($4bn within the month!) and then $4.3bn of 2025 maturities.

With that level of debt burden, it seems, uh, possible that $2.3bn or $3.3bn could make a difference.

At the same time, there’s a silver lining to the fact that the Max 9 planes are so new. There simply aren’t that many being used, the analysts write, so compensating carriers for grounded flights won’t be that expensive.