Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Boeing burnt through almost $4bn of cash in the first quarter after it slowed down production lines and paid $443mn in compensation to aircraft customers in the aftermath of a mid-air accident on one of its planes.
The US plane maker has been in crisis since a door panel blew out of a Boeing 737 Max aircraft operated by Alaska Airlines in January, putting it in the crosshairs of government investigators and forcing it to reduce deliveries as it works to improve the quality of its manufacturing. Chief executive Dave Calhoun announced he would step down at the end of the year.
The company on Wednesday reported a $355mn net loss in the first quarter. Its $3.9bn of free cash outflow was almost five times outflows of $786mn for the same period last year, though slightly lower than the $4bn-$4.5bn it had warned of in March.
Later on Wednesday, citing the “inadequate performance” of Boeing’s commercial planes business and its hampered cash flow, Moody’s downgraded its senior unsecured debt rating to one rung above junk status with a negative outlook. The rating agency expects that problems will persist “at least through 2026”.
Boeing shares were 3.5 per cent lower in afternoon trading in New York.
The results “reflect the immediate actions we’ve taken to slow down 737 production to drive improvements in quality”, Calhoun said.
“Near-term, yes, we are in a tough moment,” he said in a letter to staff on Wednesday. “Lower deliveries can be difficult for our customers and our financials. But safety and quality must and will come above all else.”
As in January, Boeing did not lay out financial guidance for the year, but chief financial officer Brian West said the second quarter would still bring “another sizeable use of cash”.
However, the plane maker reiterated its target of generating $10bn in free cash flow by 2025 or 2026, which it set in November 2022.
“This will cost us six months,” Calhoun said in an interview with CNBC, noting that while Boeing would still meet the cash flow target, the timing would be pushed back.
Boeing is building fewer than 38 Maxes per month, not as many as before the accident, meaning there is less cash flowing in.
It said it was working to improve processes including training, inspection and how “travelled work”, where jets that move through the production line with problems addressed later in the assembly process, is handled in the 737 factory in Renton, Washington.
Boeing also is attempting to stabilise its supply chain. In March, it stopped accepting fuselages from Wichita, Kansas-based supplier Spirit AeroSystems that failed to meet design and manufacturing standards.
The plane maker said in March that it was considering buying Spirit, which it had spun off two decades ago, but West said on Wednesday that it was working out details of pricing, financing and divesting work that Spirit does for others.
“We believe in the strategic logic of a deal, but we will take the time to get this right,” he said.
You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.
Boeing faces investigations by aviation regulators and the US Department of Justice. Though no one was killed in the January accident, the explosive loss of cabin pressure injured some on board and recalled two earlier fatal crashes that led to the worldwide grounding of the 737 Max for nearly two years.
The Alaska Airlines accident led to the temporary grounding of the 737 Max 9 aircraft, forcing Boeing to make payments to customers United Airlines and Alaska Airlines for disrupting their operations.
A US Federal Aviation Administration audit of Boeing has found “multiple instances” where it allegedly failed to meet manufacturing and quality control requirements. Regulators have given the company until the end of May to submit a plan to improve. A preliminary report by the National Transportation Safety Board found that the 737 Max 9 involved in the Alaska Airlines accident was missing four bolts meant to fasten the door panel to the fuselage.
Boeing said it was “implementing a comprehensive action plan” to address the audit’s findings. Calhoun’s letter to employees noted a 500 per cent increase in reports to its internal safety hotline compared with last year.
But whistleblowers, aviation safety experts and the union representing Boeing engineers have accused the company of retaliating against employees who have raised safety concerns.
The Society of Professional Engineering Employees in Aerospace said on Tuesday that it had filed a complaint with the National Labor Relations Board after two engineers received negative performance reviews after insisting over managers’ objections that Boeing review earlier work.
“Boeing can tell Congress and the media all it wants about how ‘retaliation is strictly prohibited’,” said SPEEA director of strategic development Rich Plunkett. “But our union is fighting retaliation cases on a regular basis.”
Baird analyst Peter Arment said the stock represented “a buying opportunity”. “The kitchen sink quarter was not bad as feared, with progress expected on production, deliveries and [free cash flow] in the coming quarters coupled with a management change.”
Source link
