Boeing Co. Updates
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For the last two years Boeing is relying on its Dreamliner passenger jet, the company’s famous wide-ranging aircraft, to deliver sales after the landing of the 737 Max after two fatal crashes.
Now the tables are turned. The Max, the Boeing jet family’s workhorse, is back in service and the group has filled an order delay, while deliveries of the 787 Dreamliner remain stalled after production returns.
The 787 defects grew to the point that Boeing warned that it could record a loss ahead in the Dreamliner program, perhaps Wednesday when the company reports second-quarter results.
But the question raises what S&P Global analyst Christopher Denicolo has called the “billion-dollar question”: why does Boeing have problems manufacturing this aircraft?
The Chicago-based company said this month that most of the more than 787 products already produced will not be delivered this year – contrary to assurances made by executive director David Calhoun in April.
Boeing also cut the body’s production rate broadly before July to less than five a month, which, with the company’s warning, suggests a forward loss will be reported to the program.
This means that the 787 program will lose money for 1500 aircraft that have been delivered or that have firm orders in their current blockchain, either because the costs are higher or sales are lower than expected by the company.
Boeing has already recorded forward losses in four programs: $ 6.5 billion on the 777X double-decker, $ 5.1 billion for the KC-46A refueling tank for the U.S. Air Force, and $ 486 million dollars on Air Force One United States presidential plane.
A forward loss on the 787, which generates more revenue than those other programs, could put pressure on the company to continue to supply the 737 Max jets to drive future gains and bring in cash.
Analysts say something needs to change to cause the error in a program that has run smoothly for years.
Either the U.S. Federal Aviation Administration finds flaws with Boeing aircraft production because it looks tougher on everything the manufacturer does after the two fatal 737 Max crashes or the company has changed its production process.
“It’s not a brand new program,” said Credit Suisse analyst Robert Spingarn. “So or [the FAA are] watching him more closely. . . or was it Boeing changing its approach to how to build aircraft? Do you introduce cost-effective production to save money, and are there unintended consequences with the product? “
Morningstar analyst Burkett Huey added: “What I think the market wants and is looking for from Boeing is a return to normalcy. A return to a company that sells working aircraft, and there are no headaches coming out of it. two months … What this future loss is proving is precisely the opposite. ”
In 2019 and 2020, Dreamliners continued to put money into it after regulators around the world based the Max on security concerns. But now Boeing is struggling to supply the jets.
Boeing launched 14 Dreamliners in the first half of the year compared to 158 in 2019 and 53 in 2020, when it was the company’s largest commercial delivery. This compares with deliveries of 113,737 in the first half of the year, 127 in 2019 and 43 in 2020.
The company signed the Dreamliner deliveries in October during the FAA investigated how workers had installed the wrong-sized thicknesses – thin pieces of material used to create a better fit – in joints between fuselage sections in some 787. Separately, some aircraft did not meet the technical specifications for the plane of the leather.
Boeing resumed making deliveries in March, only to stop them again in May after the FAA asked for more data on how the manufacturer plans to inspect the aircraft.
Then, on July 13, Boeing said it would “temporarily” drop the production rate to less than five a month after discovering a new flaw: problems with the adaptation and finishing of the aircraft’s nose and of the cockpit, built by its supplier Spirit AeroSystems.
“We will continue to take the time necessary to ensure that Boeing aircraft meet the highest quality prior to delivery,” the company said.
If Boeing decides to announce a forward loss on the 787 this week, it would allow incoming chief financial officer Brian West, who leaves in August, to avoid spreading bad news after it has started.
West can also signal positives. The company has all the liquidity it needs. It raised $ 25 billion from the bond market in April last year to see through the Covid-19 crisis, leaving it free to avoid pandemic-related aid from the government.
And it’s still stuck in investment credit status, albeit at the lowest rating in the band, triple B less with a negative outlook, according to S&P Global, with $ 63 billion in debt.
In addition to this, Wall Street analysts interviewed by FactSet predict a return to profitability in the third quarter. The company reported a net loss of $ 537 million in the first quarter, its sixth straight quarterly loss, with Wall Street analysts predicting a loss of 77 cents per share in the second quarter.
They estimate that free cash, or cash cash minus capital expenditures, will become positive in the fourth quarter.