Coronavirus pressures Boeing to idle operations, cure cash bleed

Boeing is under mounting pressure from the coronavirus outbreak to stop work at its final-assembly facilities, at least on a temporary basis. With at least three large widebody freighters on the flight line at Boeing’s Everett final assembly facility, deliveries planned in the coming weeks could be delayed. These include a China Southern Cargo 777F (65422), an AirBridgeCargo 747-8F (63784) and a DHL 777F (66085). China Southern Cargo Boeing 777F B-20EN (pic 1) is on a test flight out of Everett, while the second 777-9 testbed N779XX has performed a taxi test (pics 2 & 3 - yet to fly). ANA All Nippon 787-9 JA932A has just returned from its first test flight (pic 4). https://t.co/ZJEU4EhjSI pic.twitter.com/KYekXrYZdN

— Airport Webcams (@AirportWebcams) March 20, 2020 The coronavirus outbreak follows on the back of a series of crises at the company, and with the entire passenger aviation industry now suffering from the blow COVID-19 has dealt to demand for air travel, the planemaker is in parallel fighting for its long-term survival. With nearly twenty cases of COVID-19 reported across various Boeing facilities, the manufacturer is said to be nearing a decision on whether it will suspend production. The extent of such a closure could range in length from a temporary work stoppage to allow for a deep cleaning, to something longer in duration. Sources familiar with Boeing’s plans maintain a preference for a temporary closure, according to a Reuters report. Even a short closure of the company’s Everett, Wash., final-assembly plant that supplies the majority of the world’s production freighters could delay planned deliveries. Boeing accounts for 80% of in-service widebody freighters and 97% of those on order . The company’s freighter line has been a bright spot in recent months and, with air cargo demand holding up, may continue to be in the weeks ahead. Boeing’s backlog at the end of February 2020 consisted of seventeen 747-8Fs, fifty 777Fs and fifty-two 767-300Fs. In contrast with Boeing’s indecision regarding factory closures, Airbus announced March 17 it would temporarily halt production and assembly at its facilities in France and Spain for four days to implement health and safety measures such as cleaning and self-distancing. Boeing faces other tough decisions as it burns through cash. Since the beginning of March, Boeing’s stock has fallen more than 60% to below $100, against a fifty-two-week high of close to $400. Quickly running out of cash, the company plans to draw down the remaining $6.3 billion of a $13.8 billion loan from a group of banks, according to Bloomberg. In a statement, the planemaker has also asked the federal government for “a minimum of $60 billion in access to public and private liquidity, including loan guarantees” for itself and the rest of the aerospace manufacturing industry in the U.S. While its long-term outlook for the industry is still strong, Boeing said these measures are needed to alleviate the pressure on the aviation sector as well as the economy, at least until global passenger traffic returns to normal. Boeing was already going through a crisis before the COVID-19 pandemic, in the form of the 737 MAX. It has now been a year since the worldwide grounding of the aircraft as a result of two fatal crashes. Boeing, which has still not agreed on compensation for all MAX customers, suspended production in January to preserve cash and said it expects the ungrounding to begin in the middle of 2020 . It is unclear whether that remains the case. Almost 400 frames have already been built and parked, but some of the airlines the aircraft were destined to join may no longer be in business when deliveries can recommence. The 777X program has also suffered setbacks of its own, with engine issues pushing the first test flight to earlier this year and entry into service delayed to 2021. The program has only amassed orders for around 300 aircraft from eight airlines and other unidentified customers. Cathay Pacific, which ordered twenty-one aircraft in 2013, said during the release of its 2019 results it was in discussions with both Airbus and Boeing regarding the deferral of new deliveries. It wouldn’t be surprising if more customers deferred, or even cancelled, their orders, given the severe drop in demand and the likely financial condition of many airlines after the COVID-19 crisis is over. Despite the challenges that lie ahead, the consensus echoes a recent note to clients from Robert Stallard at equity research firm Vertical Research Partners. “Ultimately, we think the U.S. government will take the view that Boeing is ‘too big to fail,’” said Stallard. This stems also from the fact that Boeing is well diversified. Its Defense, Space & Security division is the second-largest defense company in the world, supplying military equipment to a number of countries, including the U.S.

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