Boeing Reverses Cash Drain, Signaling Progress in Turnaround

Boeing Co. generated $81 million in cash from its operations during the second quarter, sharply reversing its heavy cash use earlier this year as the planemaker stepped up deliveries of its highly profitable 737 Max jetliners.

The performance outpaced Wall Street’s expectations, with analysts predicting the manufacturing titan would burn through $343 million, according to data compiled by Bloomberg. It puts Boeing on track to generate free cash flow on an annual basis for the first time since 2018, Boeing’s Chief Executive Officer Dave Calhoun told employees in a memo Wednesday.

The Boeing 777-9 made an appearance at Farnborough. (Photo/Cargo Facts)

“Even as we navigate a difficult environment, we are making progress across key programs and are beginning to hit significant milestones,” Calhoun said.

The shares rose 3.8% at 9:45 a.m. in New York. Boeing tumbled 23% this year through Tuesday’s close.

Investors are eager for signs the US manufacturer is starting to emerge from the years of losses and operations breakdowns that have eroded its cash stockpile and left it burdened with debt. Boeing faces growing pressure to repair its balance sheet, and questions as to whether it will need to sell equity to pay down debt and eventually fund a new airplane.

Boeing still has much work to do before its financial and operational turnaround is complete. Cost overruns on contracts for its Starliner space capsule and MQ-25 aerial refueling drone led to $240 million in accounting charges, the Arlington, Virginia-based company said in a statement.

Earnings Miss

Boeing’s second-quarter revenue of $16.7 billion and 37-cent core loss per share were both worse than analysts expected. The company’s earnings have missed consensus estimates in all but one quarter since the start of 2021.

Boeing’s recovery plan, the latest on the 777X and struggles around Max 10 certification will be topics of interest as Calhoun addresses analysts on a conference call Wednesday morning. The planemaker’s capital strategy will also be in the spotlight with the company’s cash and investments in marketable securities declining by $900 million from the prior quarter to $11.4 billion.

Cash remains the company’s most important metric, especially for investors worried their shares may eventually be diluted, said George Ferguson, an analyst with Bloomberg Intelligence. “The noise in the market is whether they are going to have to raise equity. That keeps the stock under pressure,” he said in an interview before the results were announced.

Establishing a steady cadence of Max deliveries is a good first step to generating cash, Ferguson said. Resuming handovers of its 787 Dreamliner widebodies, which have been largely halted since late 2020, would also start to unlock billions of dollars tied up in the company’s inventory of undelivered jets.

Calhoun said Boeing’s 787 team “is in the final stages of preparing to restart deliveries.” After that milestone, Boeing plans to gradually increase output of its marquee widebody jet to a five-jet monthly pace.

Like its global industrial peers, Boeing is grappling with parts and labor shortages that have left suppliers struggling to keep pace. Those pressures, combined with high inflation, have contributed to losses on fixed-price military contracts that the company won by bidding near its costs last decade.

‘Higher Costs’

Earnings from operations at Boeing’s defense and space division tumbled 93% to $71 million from a year earlier, as the company recorded a $147 million charge due to “higher costs to meet certain technical requirements” for the MQ-25 program. The unit also took a $93 million charge in part for its do-over flight of the Starliner capsule earlier this year.

The manufacturer is girding for more disruption to its defense division if 2,500 machinists walk off the job in the St. Louis factories manufacturing Boeing’s military fighter jets. Boeing is drafting contingency plans to minimize disruption to the US government after workers voted to strike, Calhoun said during an interview on CNBC.

Boeing’s commercial airplanes unit pared its operating loss to $242 million vs. $472 million a year earlier. The global services division fared better, with its operating profit jumping 37% to $728 million.

The company’s quarterly commercial profit was depressed by $283 million in abnormal production costs stemming from low output for the 787 Dreamliner. However Boeing didn’t record a similar expense for the 737 Max, whose output reached a 31-jet monthly pace during the quarter.

Boeing isn’t racing to match the record production rate increases plotted by rival Airbus SE, whose A321neo jet has dominated sales.

“We don’t need to close that gap,” Calhoun told CNBC. “We’re in a supply-constrained industry and will be as far as I can see for years, not months. If that’s true, our job is to deliver against our backlog and continue to build that backlog, and that is what’s going on.”

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