Boeing Faces Significant Cash Drain as 737 Max Issues Impact Company Finances

Boeing Faces Significant Cash Drain as 737 Max Issues Impact Company Finances

(Bloomberg) — Boeing Co. predicted a massive cash flight for the first quarter, as regulatory controls and slowed production of its 737 Max jetliner following a January mid-air accident took a toll. adverse consequences on their finances.

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Cash outflows will reach $4 billion to $4.5 billion in the first quarter, Boeing Chief Financial Officer Brian West said Wednesday at a Bank of America conference in London. A plan to hit a cash flow target of $10 billion by 2025-2026 will be at the far end of that window. For the year, free cash flow will be in the low single digits, West said.

“We are not currently able to manage these short-term financial results due to the ongoing work around stability,” West said. “We hope we will become more predictable and better positioned, but it will take time.”

West said commercial aircraft sector margins will be negative to the tune of about 20% in the first quarter as the company pays compensation for a near-catastrophic fuselage failure of a Boeing 737 Max 9 on Jan. 5 and absorbs the wider increase. struck by the episode. Although margins will improve during the year, they will remain negative for 2024, the CFO said.

As part of the fallout from the Jan. 5 episode, regulators capped Boeing’s production to ensure the company has the resources to overhaul its manufacturing processes. West said production rates would be lower in the first half and increase again in the latter part of the year to 38,737 Max units per month. Anything beyond that “will come back to the FAA,” West said, referring to the Federal Aviation Administration.

Shares of Boeing fell 1.8% in U.S. premarket trading. The company is expected to report its first quarter results at the end of April. Weeks after the January incident, Boeing suspended its 2024 forecast, breaking with tradition of guiding investors for the year, as it worked to improve its processes and increase public scrutiny over its production standards .

The slowdown at Boeing is starting to be felt among airlines that are clamoring for planes just as they are clamoring for new jets. Ryanair Holdings Plc CEO Michael O’Leary told a separate conference in Brussels on Wednesday that summer capacity in Europe would be held back by Boeing delivery delays and separate engine problems affecting Airbus SE planes.

The Irish budget airline operates an all-Boeing fleet and has been forced to cut some targets and destinations for this summer because it is not getting the number of planes expected.

Investor expectations have softened for what was supposed to be a crucial year for Boeing’s recovery from the pandemic and the global grounding of the 737 Max after two plane crashes. Even so, Boeing is not short of cash, West said. The planemaker has sufficient reserves to finance a potential acquisition of Spirit AeroSystems Holdings Inc. with cash and debt rather than issuing stock, West said.

If completed, the deal would undo Boeing’s biggest outsourcing initiative after nearly 20 years, allowing the aerospace giant to step up oversight of its largest parts supplier. West said the company was probably “a little too ahead of itself” when it came to outsourcing assets.

“We believe the reintegration of these two companies is the best solution for the safety and quality of the aerospace industry,” West said. “It’s about running the business not like a business but like a factory, and staying focused. »

Analysts expect Boeing to spend $1.34 billion this quarter, according to data compiled by Bloomberg, as the company weathers a new crisis engulfing its main cash cow. A year ago, Boeing generated $2.95 billion in cash.

US regulators are pressuring Boeing to tighten control over manufacturing quality at its factories and suppliers after a fuselage panel exploded on a new Alaska Airlines 737 Max on January 5. FAA Administrator Michael Whitaker left a recent visit to the manufacturer’s headquarters in Seattle. The region’s industrial base is concerned that a focus on increasing production rates has eroded Boeing’s safety culture.

“Their priorities have been production, not safety and quality,” Whitaker told NBC News during a broadcast Tuesday.

(Updated with customer feedback in seventh paragraph.)

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