Slow recovery: A file photo of a Boeing 737 under construction in Renton, Washington. The company has slowed production of the model to improve on quality control. — Reuters
CHICAGO: Boeing Co chief executive officer Dave Calhoun says the embattled planemaker is making progress toward turning around its manufacturing and that it will hit its mid-decade cash-flow goal, even after reporting a major outflow in the first three months of the year as it slows output.
Speaking in an interview with CNBC after Boeing reported first-quarter results, Calhoun said reaching US$10bil in annual free cash flow will take six months longer than previously anticipated, but “I still believe it will happen in that two-year window” set by Boeing for 2025 or 2026.
“And by the way, this was never a heroic target,” Calhoun said. “This was a target that we believed we could meet.”
Boeing is receiving fewer 737 fuselages with defective parts from supplier Spirit AeroSystems Holdings Inc since instituting tougher quality controls at the start of March, Calhoun said.
Still, the first-quarter earnings release laid bare the task ahead for whoever succeeds Calhoun once he steps down by the end of this year, with a US$3.9bil cash burn, a steep loss at the commercial aircraft subsidiary and much-reduced aircraft production.
The company reported an adjusted loss per share of US$1.13, and revenue of US$16.57bil in the first three months. Production of the key 737 jetliner remains well below a cap of 38 a month mandated by regulators while Boeing works on its improvements.
The planemaker ended the reporting period with US$7.5bil in cash and short-term securities, down from US$16bil at the start of the year. The company said it still has access to US$10bil in undrawn credit.
Investors nevertheless cheered the lower-than-feared cash burn and better earnings at the defence and services subsidiaries, sending the stock up as much as 5% after the results, for its biggest intraday gain since Jan 31.
Boeing’s first three months of the year have been dominated by the fallout from a near-catastrophic accident on Jan 5 that’s upended the company’s manufacturing, financials and management.
Calhoun told employees in a memo that Boeing is “leaving no stone unturned” as it reworks its factories, encourages workers to point out defects and slows its system to identify faults in its processes.
“Near term, yes, we are in a tough moment,” Calhoun said in the memo. “Lower deliveries can be difficult for our customers and for our financials. But safety and quality must and will come above all else.”
Slower production
Boeing had already cautioned a few weeks ago that it would suffer a cash outflow of as much as$4.5bil in the quarter. By that measure, the earnings release offered a respite at a time when little has gone Boeing’s way.
“Well, it could have been worse,” said Robert Stallard, an analyst at Vertical Research Partners, in a note to investors.
“While the loss and the cash outflow are not as bad as feared, the company is still clearly facing some serious challenges in the commercial-aircraft division that will take some fixing.”
Analysts had expected a US$4.4bil cash burn in the quarter, according to data compiled by Bloomberg. Sales and earnings were also better than consensus estimates.
The results were boosted by an operating profit at Boeing’s defence division, which had posted negative margins in recent quarters.
The Defense & Space subsidiary turned a corner in the quarter, reporting US$151mil in earnings from operations after a loss a year earlier, despite booking US$222mil in losses on some fixed-price contracts. The Global Services unit had a profit of US$916mil, also an improvement from the year-earlier figure.
Boeing has faced an onslaught of bad news since a door plug blew out of a two-month old 737 Max in early January, eroding confidence in its manufacturing. The company has been buffeted by a leadership exodus, civil and criminal investigations, Congressional hearings and whistleblower revelations. Its 737 factory has slowed to a crawl as the planemaker cuts down on out-of-sequence work and drafts a 90-day plan to bolster its quality and safety for US regulators.
Regulatory oversight
Boeing’s recovery hinges in no small part on input from the Federal Aviation Administration, which has tightened oversight of the company in the wake of the accident. Measures include a capped output of the 737, and inspectors on the ground at Boeing factories reviewing manufacturing.
As of Tuesday, shares of Boeing had lost more than a third in value since the start of the year, the worst performer on the Dow Jones Industrial Average. They advanced 1.1% in New York. Rival Airbus SE had gained 18% in the period.
The US manufacturer is being squeezed by reduced revenue and the rising cost of keeping its suppliers afloat until its production system can smoothly handle higher manufacturing rates again.
Boeing plans to build 737s at a very slow pace during the first six months of 2024, then accelerate to its previous 38-jet monthly rate later in the year, chief financial officer Brian West said last month.
With the scrutiny on quality, fuselage shipments from Spirit have fallen, adding to its financial strains. Boeing said Tuesday it’s providing a US$425mil lifeline to the Wichita-based company.
Calhoun said he remains optimistic about buying back Spirit, a plan the company announced early last month. Asked in the CNBC interview about his timeframe, Calhoun said he thought it’s “more than likely” that Boeing would be able to buy back the supplier it previously owned in the second quarter. — Bloomberg
