Boeing Sees Massive Cash Drain as 737 Max Episode Takes Toll

(Bloomberg) — Boeing Co. predicted a massive cash drain for the first quarter as regulatory scrutiny and slower output of its 737 Max jetliner following a January mid-air accident take their toll on its finances.

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Cash outflow will reach $4 billion to $4.5 billion in the first quarter, Boeing Chief Financial Officer Brian West told a Bank of America conference in London on Wednesday. A plan to reach a $10 billion cash flow target by 2025-26 will be at the far end of that window. For the year, free cash flow will be in the single digit billions of dollars, West said.

“We’re not at the moment where we can manage the near term for these financial outcomes because of the work at hand around stability,” West said. “Our expectation is that we’ll get more predictable and better positioned, but it will take time.”

West said margins at the commercial aircraft business will be negative to the tune of about 20% in the first quarter as the company pays out compensation for a near-catastrophic fuselage failure on a Boeing 737 Max 9 aircraft on Jan. 5 and absorbs the broader hit from the episode. While margins will improve for the year, they will remain negative for 2024, the CFO said.

As part of the fallout from the Jan. 5 episode, regulators have capped Boeing’s output to make sure the company has the resources to review its manufacturing processes. West said production rates will be lower in the first half and the rise again in the latter part of the year toward 38 737 Max units a month. Anything beyond that “will be up to the FAA,” West said, referring to the Federal Aviation Administration.

Boeing shares fell 1.8% in US premarket trading. The company is set to report earnings for the first quarter in late April. Weeks after the January incident, Boeing suspended its forecast for 2024, breaking with tradition of guiding investors for the year, as it worked through fixing its processes and the intensifying public scrutiny on its production standards.

The slowdown at Boeing is starting to be felt among airlines clamoring for aircraft as they clamor for new jets. Ryanair Holdings Plc Chief Executive Officer Michael O’Leary said at a separate conference in Brussels on Wednesday that summer capacity in Europe will be held back by Boeing’s delivery delays and separate engine issues afflicting Airbus SE aircraft.

The Irish budget carrier flies an all-Boeing fleet and has been forced to scale back some targets and destinations for this summer because it’s not getting the number of planes it had planned for.

Investor expectations have dimmed for what was supposed to be a crucial year in Boeing’s recovery from the pandemic and a global grounding of the 737 Max after two plane crashes. Even so, Boeing’s not strapped for cash, West said. The planemaker has sufficient reserves to pay for a possible acquisition of Spirit AeroSystems Holdings Inc. in cash and debt rather than issuing equity, West said.

If it’s consummated, the deal would reverse Boeing’s largest outsourcing move after nearly 20 years, allowing the aerospace giant to tighten oversight of its most important parts provider. West said the company probably got “a little too far ahead of itself” on the topic of outsourcing assets.

“We believe that reintegrating these two companies is best for safety and for quality for the aerospace industry,” West said. “It’s about running the business not as a business but as a factory, and stay focused.”

Analysts predict Boeing will burn through $1.34 billion during this quarter, according to data compiled by Bloomberg, as it works through another crisis engulfing its main cash cow. A year ago, Boeing generated $2.95 billion in cash.

US regulators are pressuring Boeing to tighten its control over the workmanship in its factories and at suppliers after a fuselage panel blew out of a new Alaska Airlines 737 Max on Jan. 5. FAA Administrator Michael Whitaker walked away from a recent visit to the manufacturer’s Seattle-area industrial base concerned that the emphasis on boosting production rates had eroded Boeing’s safety culture.

“Their priorities have been on production, and not on safety and quality,” Whitaker told NBC News in a Tuesday broadcast.

(Updates with customer comments in seventh paragraph.)

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