Boeing’s $3.9bn cash burn adds urgency to revival plan

Boeing chief executive Dave Calhoun plans to step down later this year.

Boeing burned through $3.93bn (€3.67bn) in cash in the first quarter, a less dramatic drain than analysts had predicted, as the embattled plane maker continues to slow output to get a handle on its manufacturing issues.

The company reported revenue of $16.57bn in the first three months, according to a statement which didn’t provide earnings guidance for the year. Boeing’s first three months of the year have been overshadowed by the fallout from a near-catastrophic accident on January 5 that’s upended the company’s manufacturing, financials and management. 

Boeing has faced an onslaught of bad news since a door plug blew out of a two-month-old 737 Max in early January, eroding confidence in its manufacturing. The company has been buffeted by a leadership exodus, civil and criminal investigations, US Congressional hearings and whistleblower revelations. Its 737 factory has slowed to a crawl as the plane maker cuts down on out-of-sequence work and drafts a 90-day plan to bolster its quality and safety for US regulators.

'Tough moment'

Chief executive Dave Calhoun, who plans to step down by the end of the year, told employees in a memo that Boeing is “leaving no stone unturned” as it reworks its factories, encourages workers to point out defects and slows its system to identify faults in its processes. “Near term, yes, we are in a tough moment,” Mr Calhoun said in the memo. “Lower deliveries can be difficult for our customers and for our financials. But safety and quality must and will come above all else," he said.

During the quarter, the 737 programme slowed production below 38 a month, Boeing said. That’s the cap mandated by regulators while Boeing works on its improvements. The plane maker ended the reporting period with $7.5bn in cash and short-term securities, down from $16bn at the start of the year. The company said it still has access to $10bn in undrawn credit. Boeing had already cautioned a few weeks ago that it would suffer a cash outflow of as much as $4.5bn. By that measure, the earnings release offered a respite at a time when little has gone Boeing’s way.

“Well it could have been worse,” said Robert Stallard, an analyst at Vertical Research Partners, in a research note to investors. “While the loss and the cash outflow are not as bad as feared, the company is still clearly facing some serious challenges in the Commercial Aircraft division that will take some fixing.” Sales and earnings were also better than consensus estimates. The results were boosted by an operating profit at Boeing’s defence division, which had posted negative margins in recent quarters. 

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The Defence & Space subsidiary turned a corner in the quarter, reporting $151m in earnings from operations after a loss a year earlier, despite booking $222m in losses on some fixed-price contracts. The Global Services unit had a profit of $916m, also an improvement from the year-earlier figure. 

Boeing’s recovery hinges in no small part on input from the US Federal Aviation Administration, which has tightened oversight of the company in the wake of the accident. Measures include a capped output of the 737, and inspectors on the ground at Boeing factories reviewing manufacturing. Shares of Boeing had lost more than a third in value since the start of the year.  Rival Airbus, which reports earnings on Thursday, had gained 18% in the period.

 Bloomberg