Boeing CFO Predicts Continued Cash Burn, Stock Drops

Boeing Stock NYSE:BA

Boeing Co. (NYSE:BA) has withdrawn its plan to generate cash this year and now predicts another considerable outflow in the current quarter. The troubled aerospace giant is battling on multiple fronts to revive production and boost deliveries.

According to Chief Financial Officer Brian West, the cash burn in the second quarter could equal or exceed the almost $4 billion lost in the first three months of the year. West made this sobering prediction at a Wolfe Research conference on Thursday, indicating that the entire year is now expected to see negative cash flow.

West’s pessimistic outlook is a departure from his previous cautious comments just weeks ago, when he anticipated a challenging second quarter but with an improving cash burn situation. However, ongoing challenges, including extra certification requests from China for specific aircraft components, have hindered Boeing’s recovery efforts. This has resulted in a halt in deliveries to China, a crucial market for the aerospace giant, further straining its financial position.

Following West’s announcement, Boeing’s stock plummeted as much as 6.7% in US trading, marking the most significant intraday drop in nearly four months. The company’s troubles have been compounded by the repercussions of a near-catastrophic incident involving a 737 Max 9 plane in January, which exposed quality and safety issues and led to a leadership shakeup.

West had previously expressed optimism about generating free cash flow in the low single-digit billions for the full year, with expectations of sequential improvement in cash burn. However, the recent setback with China’s Civil Aviation Administration seeking additional documentation has stymied Boeing’s ability to deliver aircraft to the country.

The setback with China comes at a crucial time for Boeing, which had only recently resumed deliveries to the country after a five-year hiatus. The resumption of deliveries, particularly of the 737 Max, is crucial for Boeing to generate cash and reduce its stockpile of aircraft built during the global grounding and subsequent pandemic.

Despite the setbacks, West remains positive about Boeing’s future performance, projecting operational and financial improvement in the third and fourth quarters. He reassured stakeholders that the company is committed to addressing its issues diligently, though progress might take time due to the nature of the aerospace business.

Looking ahead, Boeing still targets certification for its 777X widebody model by 2025, although concerns persist over potential further delays. Additionally, the company faces supply chain issues with its 787 model, including shortages of heat exchangers and seats, though these issues are not expected to impact the overall delivery schedule.

Regarding the possible reintegration of Spirit AeroSystems Holdings Inc., Boeing’s key supplier, West expressed optimism about reaching an agreement in the second quarter. However, he emphasized the company’s commitment to preserving its investment-grade credit rating, indicating a cautious approach to funding any deal.

Boeing’s cash burn in the first quarter prompted credit rating agency Moody’s Ratings to downgrade the company’s credit grade. To strengthen its finances, Boeing subsequently raised $10 billion from a bond sale.

The company is scheduled to submit a 90-day plan to address manufacturing and safety concerns to the Federal Aviation Administration on May 30. This plan will outline Boeing’s proposed measures to rectify quality control issues following incidents like the January mishap involving a 737 Max.

West clarified that the 90-day plan is merely the start of Boeing’s efforts to address regulatory concerns, emphasizing the company’s commitment to long-term improvement.

As Boeing navigates through turbulent skies, stakeholders anticipate further developments as the company endeavors to overcome its challenges and regain stability in the aerospace sector.