(Bloomberg) — Boeing Co. scrapped a plan to generate cash again this year and said it would suffer another big influx in the current quarter as the beleaguered planemaker fights on multiple fronts to bring production back into the system and ramp up deliveries.
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Brian West, chief financial officer at Wolf Research Conference, said Thursday that cash burn in the second quarter will be similar or even worse than in the first three months of the year, when Boeing spent nearly $4 billion. The entire year will now be “utilization versus cash flow generation,” he said.
While West warned just a few weeks ago that Boeing would see a “chaotic” second quarter with a significant cash outflow, the latest forecasts paint a bleaker picture for the manufacturer's recovery prospects. The company's problems were exacerbated by China's request to obtain additional certificates for some aircraft parts. This, in turn, led to the cessation of deliveries to one of the world's most important aviation markets, which led to a deterioration in the financial situation.
Boeing shares fell as much as 6.7% in US trading, the largest intraday decline in nearly four months. The US planemaker is facing a deep crisis following the near-disaster in January of a 737 MAX 9 plane in flight. The planemaker has been criticized by regulators, lawmakers and airlines, as the incident highlighted quality and safety lapses in its factories and led to the exit of its chairman, CEO and head of its business unit.
West said in April that the company would generate free cash flow in the “low billions of dollars” for the full year as deliveries increase again. He also expected cash burn in the second quarter to improve sequentially.
The Civil Aviation Administration of China requested additional documents related to the certification of the batteries in the cockpit voice recorders, and the company was unable to deliver the planes to the country, West said. He said that deliveries during this period will be close to the numbers achieved in the first three months.
China setback
The CAAC move represents a setback for Boeing, which has just resumed deliveries of new planes to China after a five-year hiatus. Resuming deliveries of 737 MAX planes to China is vital to generating cash as well as reducing its inventory of already built planes that have been sitting since a global grounding nearly five years ago and the Covid-19 pandemic that followed.
“Our operational and financial performance will improve and accelerate as we go through the third and fourth quarters, and that will be beneficial to all the work we are doing now,” West said. “I understand that everyone wants things to go faster, but it is a long-term process, and we have to be disciplined.”
West said the company still expects to win certification for its wide-body 777X model in 2025. Some customers were concerned that that model — already five years late — could be delayed further as Boeing grapples with its many problems. The company is also facing supply issues for parts on the 787, including heat exchangers and seats, although the issues will not affect the overall delivery schedule for the widebody model, West said.
West said he remains optimistic that Boeing can “get something done” with Spirit AeroSystems Holdings Inc. In the second quarter to re-integrate its most important resource. He said that while “nothing is off the table” regarding financing the deal, the company is keen to maintain its investment-grade credit rating.
Burn cash
Boeing's cash burn in the first quarter prompted Moody's to lower the company's credit rating to risk. The planemaker then raised $10 billion from the bond sale.
The company is scheduled to submit a 90-day plan to address deficiencies in its manufacturing processes and safety culture on May 30, according to the FAA. The plan will outline steps the company intends to take to fix quality control problems at its plants after a door socket on a new 737 MAX nearly exploded in January.
West said the 90-day plan is “not the finish line,” and that Boeing looks forward to continued engagement with the aviation regulator.
“We look at this as a long-term investment that is good for the company, good for our customers, and good for the industry,” West said of the road ahead.
–With assistance from Alison Verserel.
(Updates with additional comments from CFO)
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