Boeing Slumps as War, Inflation Outweigh Dreamliner Progress
Boeing Slumps as War, Inflation Outweigh Dreamliner Progress
(Bloomberg) -- Boeing Co.’s shares plunged the most in almost two years after it burned more cash than Wall Street had expected, underscoring the strain on the planemaker as it contends with rising inflation and halted 787 Dreamliner deliveries.
The aviation titan recorded negative $3.57 billion adjusted free cash flow in the first quarter and racked up $1 billion in new accounting charges for its defense division, according to a statement Wednesday. Boeing is also pausing production of its 777X jetliner through 2023 and postponing the initial delivery of the hulking twin-engine aircraft to 2025.
“This was another dreadful quarter from Boeing,” Robert Stallard, an analyst with Vertical Research Partners, said in a note. “And what we think will really worry investors is that we keep getting more bad news.”
The results highlight the magnitude of issues facing the planemaker, stretching beyond the 787 delays to include the impact of war, Covid and tougher regulatory scrutiny in the wake of two fatal 737 Max crashes.
The shares slumped 8.9% at 10:01 a.m. in New York, the biggest intraday decline since June 2020. Investors had been bracing for a poor quarterly showing, sending Boeing shares to a 52-week low Tuesday after General Electric Co. and Raytheon Technologies Corp. warned of supplier strains and spiking costs for raw materials.
The results made for a “messier quarter than any of us would’ve liked,” Boeing Chief Executive Office Dave Calhoun said in an interview on CNBC. While inflation and a possible recession loom, he is optimistic that the company will generate cash on an annual basis this year for the first time since 2018.
The planemaker has filed a certification plan with U.S. authorities for the Dreamliner and completed the required work to address tiny structural flaws in an initial batch of the carbon-fiber jets. Test flights have begun, Calhoun told employees Wednesday without specifying what other tasks remain or when Dreamliner handovers will resume.
Defense Pressure
Boeing is also facing pressure in its defense and space division, whose longtime CEO, Leanne Caret, stepped down at the end March. Inflation and Covid-19 accelerated the company’s losses on two fixed-price contracts: retrofitting 747 jumbos for the next Air Force One fleet and developing a T-7A jet to train U.S. Air Force pilots.
The accounting charge shows the risks that high inflation poses to Boeing’s strategy last decade of counting on its once-robust commercial business to help it aggressively underbid competitors for defense franchises. The company wrote off $691 million weeks after winning contracts for the U.S. Air Force trainer and a Navy refueling drone in 2018.
Boeing’s first-quarter sales of $14 billion and core loss of $2.75 a share both missed the average of analysts’ estimates compiled by Bloomberg. The company’s stockpile of cash and marketable securities declined 24% during the quarter to $12.3 billion.
Boeing faces new challenges in Russia. The planemaker has halted titanium imports from a joint venture forged decades ago, suspended engineering support at its Moscow design center and halted jet deliveries to airlines and lessors subject to U.S. sanctions imposed after Russia invaded Ukraine. The company took a $212 million pre-tax charge related to the conflict.
The 787 Dreamliner also took a toll, with the company logging $312 million in abnormal costs. Boeing hasn’t delivered any 787s since June as it worked to unearth tiny structural imperfections, and craft a plan with regulators and suppliers to ensure every jet in its production system is built to its engineering specifications.
Stored Planes
Boeing has more than 400 completed planes stashed in storage, as a result of the 737 Max grounding following two crashes and tough scrutiny by regulators of its proposed 787 repairs and 777X design, Calhoun told CNBC. Its cash generation will improve once it starts delivering those jets out of an inventory that’s swollen to $79.8 billion.
“It could be that we’re nearing the bottom,” George Ferguson, analyst with Bloomberg Intelligence, said in an interview. “The changes are in place to turn this, and it’s raising build rates and resuming 787 deliveries again. But this quarter is just not looking good.”
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