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BA – CDS 108, Base Case iCDS 14bps, Negative Case iCDS 29bps, 2026 2.196% Bond YTW of 1.747%, iYTW of 0.987%, Baa2 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

June 25, 2021

  • Credit markets are overstating BA’s credit risk with a YTW of 1.747% and CDS of 108bps, relative to an Intrinsic YTW of 0.987% and Intrinsic CDS of 14bps
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. Management’s compensation framework should drive them to focus on all three value drivers; margin expansion, asset efficiency, and top-line growth, which should lead to Uniform ROA expansion and increased cash flows available for servicing obligations. Additionally, management has no change-in-control compensation, and given the firm’s scale, it is unlikely to be a target for a buyout or acquisition, reducing event risk for creditors
  • Earnings Call Forensics™ of the firm’s Q1 2021 earnings call (4/28) highlights that management is confident the next generation of airplanes will focus on lower costs per seat and that continued improvement on the 737 MAX program will enable them to turn cash flow positive in 2022