CreditOutlook

MOODYS.COM 19 JUNE 2017 NEWS & ANALYSIS Corporates 2 » Boeing’s Recent Aircraft Orders Are Credit Positive » Amazon.com’s Planned Acquisition of Whole Foods Is Credit Positive » FDA Asks Endo to Stop Selling an Opioid Painkiller, a Credit Negative » Kirby’s Planned Acquisition of Stewart & Stevenson Is Credit Positive » Mattel’s Dividend Cut Is Credit Positive, but Will Have Little Effect on Deleveraging Efforts Infrastructure 7 » Kyushu Electric Moves Closer to Restarting Two Nuclear Reactors Following Favorable Court Ruling Banks 8 » Chile’s Proposed Banking Law Is Credit Positive for Banks’ Depositors and Senior Bondholders » National Bank of Greece’s Sale of Its Bulgarian Operations Is Credit Positive » Czech Banks Will Benefit from Increase in Countercyclical Capital Buffer » Tanzanian Banks’ Increased Capital Requirements Are Credit Positive » Reserve Bank of India’s Plan to Resolve Nonperforming Assets Is Credit Positive » Japan Post Bank Moves Closer to Offering New Overdraft Accounts, a Credit Positive » Cuts to Korean Credit Card Companies’ Merchant Fees Are Credit Negative Sovereigns 21 » US Revision of Cuba Policy Is Credit Negative for Island » Steep Decline in South Africa’s Business Confidence Is a Setback to Growth Recovery » Zambia’s Suspension of 48 Opposition Members of Parliament Is Credit Negative US Public Finance 25 » Pennsylvania’s Benefit from Shifting Pension Risks to New Hires Will Not Affect Accumulated Liabilities » Fannie Mae’s New Debt-to-Income Requirements for Mortgage Loans Will Benefit State Housing Finance Agencies RECENTLY IN CREDIT OUTLOOK » Articles in Last Thursday’s Credit Outlook 28 » Go to Last Thursday’s Credit Outlook Click here for Weekly Market Outlook, our sister publication containing Moody’s Analytics’ review of market activity, financial predictions, and the dates of upcoming economic releases. NEWS & ANALYSIS Credit implications of current events 2 MOODY’S CREDIT OUTLOOK 19 JUNE 2017 Corporates Boeing’s Recent Aircraft Orders Are Credit Positive Last Thursday, The Boeing Company (A2 stable) said that it had received an order from China Aircraft Leasing Group Holdings Limited (CAL, unrated) for 50 737 MAX aircraft. The transaction is credit positive because it narrows Boeing’s cumulative order gap with Airbus SE (A2 stable). Last Wednesday, the Defense Ministry of Qatar said the US had agreed to sell Qatar 36 Boeing F-15QA fighter aircraft. That transaction also is credit positive for Boeing because it should lead to a meaningful increase in the company’s defense backlog once the contract is finalized. We estimate the value of the MAX order to be $2.3-$2.5 billion, based on our estimates of the current market values of the 2017 “-8” and 2018 “-9” variants of about $46 million and $49 million per aircraft, respectively. These values also include the typical significant discounts from list prices that customers receive when placing large orders. The CAL and other recent orders reflect the appeal of Boeing’s newest narrowbody aircraft among Chinese lessors and operators in Asia, including Chinese airlines, notwithstanding the recent first flight of upstart Commercial Aircraft Corporation of China’s C919 narrowbody, which is looking to challenge the Boeing and Airbus duopoly. The CAL announcement increases Boeing’s year-to-date net narrowbody orders to 185. This compares with Airbus’ net orders of 45 through the end of May. Given that Boeing will deliver the aircraft to CAL over a number of years following 2017, the actual prices could exceed our estimates. This is due to a typical contract provision called escalation, which accounts for inflation in various costs from order date to delivery date. The F-15 announcement from Qatar valued the agreement at $12 billion. We believe this includes associated weapons packages, training and support and services over the aircraft’s operating life. Once it is finalized, the order will extend production of a legacy fighter program that was likely to cease by the end of the decade. The Qatar deal will grow the defense segment backlog while Boeing awaits the US Department of Defense’s (DoD) decision on the T-X trainer program. Winning the T-X is important to Boeing and its position as a prime contractor on a significant DoD program since losing out to Lockheed Martin Corporation (Baa1 stable) on the F-35 joint strike fighter program and to Northrop Grumman Corporation (Baa1 stable) on the B-21 Raider long-range strike bomber program. A deal for 36 F-15QA aircraft with options for 36 more cleared congressional notification in November 2016. Because this is a foreign military sale, the Qatari government contracts directly with the US government, which then negotiates with the prime contractor. The ultimate price and quantity of aircraft and related expenditures depends on Boeing’s negotiated contract with the DoD. This publication does not announce a credit rating action. For any credit rating