DM Foss
BoeingNew York Stock Exchange: BAThe incoming CEO, Kelly Ortberg, will start his duties on August 8 amid a variety of challenges that the aerospace and defense giant is working to overcome. While Ortberg’s appointment as CEO removes some uncertainty for investors, important questions remain About BoeingBachelor’s) in the future, according to a report by financial services firm Morgan Stanley.
“Optimistic investors see current operating results as closer to the bottom than the peak,” Morgan Stanley analyst Kristin Lewag said in an Aug. 1 report. “However, pessimistic investors are concerned about Boeing’s long-term earnings strength.”
Cash Flow Scenarios
The company has been burning cash this year as deliveries of its best-selling 737 Max jet were curbed after a near-catastrophe in January, and investors are looking for a sign that Boeing’s (BA) free cash flow will turn positive in the next 18 months.
“What is a reasonable increase in free cash flow in 2025? How realistic is the $10 billion free cash flow target and what operating conditions would Boeing need to meet that target?” Morgan Stanley said in a report.
The bank expects Boeing to generate free cash flow of $5.39 billion in 2025 and $6.74 billion in 2026.
The doubts about Boeing’s cash flow raise the possibility that the company will need to raise money by issuing stock or selling bonds. Boeing has gone deep into debt to support itself during the collapse in air travel caused by the coronavirus pandemic.
Another major issue is the cost of the 777X widebody jet, which Boeing is preparing to deliver its first plane. The company has 540 backorders for the redesigned jet.
| Total Boeing (BA) 777X orders | |
| client | Total Quantity |
| Air India | 10 |
| Japan Airlines Co., Ltd. | 19 |
| ANA Holdings Limited | 1 |
| British Airways | 18 |
| Cargolux International Airlines | 10 |
| Cathay Pacific | 21 |
| The UAE | 262 |
| Ethiopian Airlines Group | 8 |
| Etihad Airways | 25 |
| Lufthansa | 27 |
| Qatar Airways | 74 |
| Silk Way West Airlines | 2 |
| Singapore Airlines | 31 |
| Anonymous Client(s) | 32 |
| grand total | 540 |
Boeing (BA) is also in the process of acquiring key supplier Spirit AeroSystems (SPR), whose operating expenses are another source of investor skepticism, according to Morgan Stanley. In 2005, Boeing (BA) spun off Spirit (SPR) into a separate public company as part of a cost-cutting measure. Concerns about product quality and supply chain efficiency prompted Boeing (BA) to seek an acquisition.
Employment contract
Meanwhile, thousands of aircraft maintenance workers have threatened to strike as their contracts approach their September 12 expiry date.
“Some of the terms the union is demanding include a 40% pay raise over three years and the reinstatement of Boeing pensions, with years of service backdated to 2014,” Morgan Stanley said. “How should we think about the potential additional operating costs as a result of this agreement?”
Once Boeing reaches higher production rates for the 737 Max and 787 Dreamliner, investors will want to understand the cash economics of the programs “as customer discounts decline and higher inflation is factored into supply chain and labor costs,” Morgan Stanley said.
Finally, the long-term ability of Boeing’s defense and space businesses to generate cash is another area of uncertainty, according to Morgan Stanley.