Boeing’s $3.7 Billion Cash Burn Signals Long Way to Recovery

(Bloomberg) -- Boeing Co. burned through $3.68 billion in the first quarter as the planemaker grappled with manufacturing flaws on its marquee 787 Dreamliner and new cost overruns on a high-profile military contract: the next Air Force One jets.

While Chief Executive Officer Dave Calhoun sees 2021 as an “inflection point” in the company’s turnaround from the coronavirus pandemic and the 737 Max’s grounding, the results made clear that the reeling titan faces a long, slow and uneven recovery.

The cash outlays were about $300 million worse than Wall Street expected, as a drop off in Dreamliner deliveries blunted financial gains -- such as they were -- from the Max’s return after the longest grounding in U.S. history. Boeing also posted a deeper-than-expected net loss and recorded a $318 million charge, in part from a supplier spat in the Air Force One project.

The shaky performance underscored the challenges ahead as Boeing battles through one of the toughest stretches in its century-long history. While the planemaker is ramping up deliveries, it still has 400 Max aircraft built during the flying ban, including planes without buyers known as “white tails” that will need to be resold. Compensation payments of $1.2 billion to Max customers crimped results.

Meanwhile, a five-month halt to Dreamliner handovers drove inventories to $83 billion, almost $1 billion higher than a quarter earlier. Boeing has about 100 Dreamliners parked around its factories and in the California desert, as teams of mechanics search for wrinkles little more than the width of a human hair. The company said it’s adapting its production process so that newly built airplanes won’t have to undergo the complicated structural inspections.

“They’re all reminders of the challenges Boeing faces, and some of them were a little harder than we thought,” said George Ferguson, an analyst with Bloomberg Intelligence. “They’re not generating cash this year. There’s nothing right around the corner. We knew that going in to the call, and some of the commentary around it reinforced it.”

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The shares fell 2.9% to close at $235.46 in New York. That brought Boeing’s advance this year to 10%, slightly behind the gain of the S&P 500 aerospace and defense index.

Once a prodigious cash generator, Boeing has burned about $30 billion since regulators grounded the best-selling Max in March 2019, after two crashes that killed 346 people. The cash consumed is roughly double what it would cost to create an all-new jetliner from scratch, one of the tasks ahead for Boeing as it tackles a massive rebuilding effort and heavy debt load.

Executives expect the cash performance to improve over the course of the year, but they don’t predict breaking even until 2022.

‘Pretty Bleak’

“It’s still pretty bleak,” Ken Herbert, an analyst with Canaccord Genuity, said in an interview. “If you look at these numbers, it’s ‘Oh, my goodness.’ But the results are broadly within expectations.”

The Chicago-based company reported a first-quarter core loss of $1.53 a share. Analysts had predicted a 90-cent shortfall, based on the average of estimates compiled by Bloomberg. Revenue fell 10% to $15.2 billion.

Boeing’s report was relatively clean, without huge new accounting writedowns or production rate changes that characterized the company’s quarterly results for most of the last year. Boeing Global Services posted a better-than-expected operating margin of almost 12%, while the commercial unit’s margin of about minus 20% was a disappointment -- although likely linked to the drop in Dreamliner deliveries.

The company’s contract to provide the next U.S. Air Force One aircraft is in a reach-forward loss position, Boeing said in a regulatory filing. That means estimated costs exceed the revenue Boeing expects to receive from the $3.9 billion contract. The already built 747-8 commercial jets are being kitted out with new communications systems, living quarters for the first family and a medical suite.

Boeing cited “engineering inefficiencies from the Covid-19 environment” for the deficit. “We believe these inefficiencies will result in staffing challenges, schedule inefficiencies and higher costs in the upcoming phases of the program.”

Calhoun and Greg Smith, Boeing’s chief financial officer, warned that April aircraft deliveries could be light as Boeing works with U.S. regulators on a plan of action on potential electrical faults in the cockpits of all Max jets built since early 2019. The company hasn’t delivered any Max planes since it advised operators to temporarily ground the affected aircraft on April 9.

The executives expect to make headway clearing out undelivered 737 jets once the maintenance fix is in place. But how quickly Boeing and its marquee Max and 787 recover depends in large part on whether the U.S. and China break their trade impasse.

In an ominous sign, Boeing’s expectation for Max certification in China, which once seemed to be just weeks or months away, has slid to the second half of the year.

The Biden administration risks hurting Boeing, and U.S. exports, if the matter drags until China’s homegrown C919 makes its debut, said Ferguson, the Bloomberg Intelligence analyst.

“There’s a limited amount of time to get planes into China,” he said. “And Airbus is doing it.”

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