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Boeing 737 Max issue may have broad aviation credit effects: Fitch

CREDIT rating agency Fitch Ratings said that the crisis surrounding the Boeing 737 Max could be a concern throughout the aviation credit sector for much of 2019.

Countries and airlines across the world have been grounding the aircraft over safety concerns after the deadly Ethiopian Airlines Boeing crash on March 10, which followed a fatal accident in Indonesia in October.

Most concerning would be a harsh scenario including a systemic issue with the aircraft leading to lengthy groundings, material delivery delays, significant order cancellations and negative public sentiment toward the Max, said Fitch.

This could weaken the credit profiles of Boeing (A/Stable) and some of its suppliers and place significant pressure on some weaker airline issuers. The effect on aircraft-secured debt transactions would likely be mixed, with deals containing the Max potentially coming under pressure, offset by higher valuations for alternate narrow-body models needed to replace the MAX. It does not expect the MAX crisis to have a material effect on aircraft lessors rated by Fitch.

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Fitch stopped short of taking any credit rating actions, pointing out that doing so would be premature as final conclusions about the Ethiopian Airlines and Lion Air crashes are not yet known.

It would, however, be watching for several key developments. They include the initial findings of the Ethiopian crash investigation, as well as similarities between the two crashes that would possibly indicate the presence of a design flaw that would need to be addressed.

Boeing's credit profile is not immediately affected by the two crashes because of the company's substantial liquidity, financial flexibility, low leverage, market positions and revenue diversification, said Fitch.

If the situation persists, it expects Boeing to adjust or eliminate share repurchases and re-evaluate its planned increase of 737 production rates to 57 per month.

It added that while the Max makes up a small percentage of the global airplane fleet, it is a key part of many airlines' growth and cost reduction plans.

"The Max is a key programme for Boeing, with approximately 90 per cent of 2019 estimated 737 programme deliveries coming from the Max," Fitch said.

It estimated 2019 Max deliveries at around 590 aircraft, worth US$27 billion to US$30 billion in revenue.