To attract investors, Boeing expects short-term pain, then stability

Boeing on Wednesday lowered Wall Street expectations for aircraft delivery and cash that Boeing will receive in the next two years while offering hope of a full recovery within three to four years.

In an attempt to anchor Wall Street expectations, Boeing CEO Dave Calhoun predicted on Wednesday that a recovery from the company’s challenges won’t come until 2025 or 2026 — and only then will Boeing generate the full flow of cash it has been expecting but that has been slow to achieve.

Calhoun said Boeing wouldn’t hand over its all-new commercial jet to airlines until the mid-1930s, meaning no such aircraft would be released for development until the late 2000s. Anything urgent, he said, “won’t happen.”

“I don’t think we’ll get to the drawing board this decade,” he added.

Calhoun delivered a lively and emotional presentation to an audience of analysts and investors gathered Wednesday for the Investor Day conference at Boeing’s Aircraft Delivery Center in Seattle.

With Boeing’s leadership solidifying over the past three years, this was the first investor day conference since before the Max crash. Calhoun called it “a party coming up for us.”

He recounted the “existential” threats the company had had to overcome in the past three years: the impact of the fatal 737 Max crash and the long grounding of that plane; The collapse of air travel with the COVID-19 pandemic; And the long suspension of delivery of the 787 Dreamliner due to quality defects.

Praising what he called “a shift, a comeback…through one of the most turbulent moments in industrial history” that threatened Boeing’s survival, Calhoun said, “I feel we have mitigated these existential moments that we had to face.”

When Boeing finally achieves production stabilization “sometime in 2025 or 2026,” Calhoun said, free cash flow — cash left over after paying for operating costs and expenses on equipment — will come to about $10 billion annually.

Boeing had $4.3 billion in cash flow in 2019, another $20 billion in cash flow in 2020, and $4.4 billion in outflow last year. This year, it expects to finally reach positive free cash flow again in the range of $1.5 billion to $2 billion.

“While the ‘$10 billion and stable’ target isn’t quite as exciting, it feels good to us,” Calhoun said in closing. “That’s exactly where we want to be… and it’s going to be awesome.”

Supply Chain and Rework Issues

Much of the near-term pain is due to supply chain delays as suppliers of airlines large and small are struggling to rehire and train new staff after letting many go during the pandemic.

However, Calhoun expressed confidence that Boeing will slowly work around these problems.

“The risks that we’ve faced and overcome in the past two years have prevented us from expecting anything with confidence,” he said. “The dangers were coming at us from kind of everywhere.” “The supply chain risk to us… is very minimal compared to others. So I think everything is manageable.”

Another pressure point for Boeing itself is the sheer amount of work required to clear its remaining inventory of completed but grounded aircraft: the 270 single-aisle 737 Max and 115 wide-body 787 Dreamliners.

About 138 of the MAXs of Chinese airlines show no signs of taking them amid political tension between the United States and China. Boeing began remarketing those planes.

Some of the MAXs have been in storage for three years and are now intended for a different airline than the one I originally ordered. These take months to prepare for delivery.

“It takes several hours or more to get ready [a MAX for] Back to service as it is to assemble it in the first place, Calhoun said.

He said that although the flaws in the 787’s fuselage were “accurate,” they nonetheless “required a more aggressive rework.”

Stan Dale, chief executive of the Commercial Aircraft Unit, said the rework on each 787 was “actually greater than the assembly hours” it took to build the aircraft originally.

This rework takes up space in the factory, which limits the pace of growth for newly built 787s.

Guidance less for next year

It was left to Boeing’s chief financial officer Brian West, speaking after his boss, to immediately put forward the cooler financial forecast for the future.

West said free cash flow next year will be between $3 billion and $5 billion, well below Wall Street forecasts, which before the latest quarterly report forecast a result in the range of $5 billion to $8 billion.

He said Boeing’s defense and space unit, which in the third quarter canceled a whopping $2.8 billion on distressed fixed-price contracts — mostly on the KC-46 tanker and Air Force One programs — will continue to drain heavy cash in 2023, on the order of $500 million. dollars to 1 billion dollars.

Calhoun acknowledged that at this point, having accumulated $6.85 billion in writedowns since 2014, Boeing would incur a total financial loss to its tanker program.

“Unfortunately, we know we will never recover the massive investment we’ve made over these past years,” he said.

West said the plan for a full recovery by 2025-2026 targets production of about 50 MAX per month in Renton, about 10 mid-size 787s per month in North Charleston, South Carolina, and about four large 777/777Xs per month in Everett.

The addition of 767 cargo carriers, tankers, and 737-based P-8 military anti-submarine aircraft takes Boeing well ahead of that timeframe to produce and deliver 800 aircraft annually — back to the number of planes delivered in 2018, before the planes were decommissioned. Max unleashed the crisis that Boeing has faced ever since.

West told investors that it would return Boeing to the “cash juggernaut you all know.”

Next year, after accounting for both newly built planes and those taken out of storage, West said Boeing expects to deliver 400 to 450 MAXs, or between 33 and 38 of those planes per month, and 70 to 80 Dreamliners, about six monthly.

With Boeing’s plan to build a maximum of 50 planes per month by 2025 or 2026 in perspective, rival Airbus says it is advancing towards a production rate of its rival A320 family of 65 planes per month in early 2024, rising to 75 per month in 2025. .

Another glitch in MAX production in October

However, the promised delivery numbers highlight the starkly low current delivery rates, which have varied widely from month to month.

The head of the commercial aircraft deal revealed another bump in the road on Wednesday when he told the public that quality problems affected production of the 737 Max last month.

The deal said Boeing delivered just 23 Max in October, down from 36 the previous month and the lowest monthly number since February.

“At the last minute, our quality management system discovered two defects in the fuselage,” Dell explained. He said the defects were discovered at Spirit AeroSystems, which manufactures the 737 MAX fuselage in Wichita, Kansas.

The deal added that despite this new flaw, Boeing would restore its shipments to about 30 max per month at the end of the year.

The deal also revealed one more delay: Boeing now expects the largest and last 737 Max model, the Max 10, to be certified to carry passengers until the end of 2023 or early 2024, he said.

The smallest model, the MAX 7, is expected to be certified early next year.

Certification of both planes depends on Congress granting Boeing an extension of the deadline after which the manufacturer will have to significantly upgrade the MAX’s flight control systems to meet new safety standards.

A week ago, Boeing reported a net loss of $3.3 billion in the third quarter due to massive writedowns on the defense side.

After that shock, Boeing’s leadership on Wednesday seemed intent on persuading investors to be patient.

Setting lower, more realistic financial goals over the next two years will reduce the chances of another shock quarterly failure to meet Wall Street expectations, invariably causing the stock price to fall.

The promise is that recovery will come — eventually, after several years but still in sight.

The market reacted positively on Wednesday, with Boeing shares closing at $147.41, up $4.03, or 2.8%.

“It’s not like we don’t take risks in the future,” Calhoun said. “But these risks seem to me more manageable than the risks we encountered in the rear-view mirror.”

He insisted that Boeing can achieve the goals set on Wednesday even if the current global geopolitical tension continues to prevent deliveries of aircraft to China.

“We don’t need China to come back as a client to do what we’re talking about here,” Calhoun said. We don’t turn our backs [China] In any way, shape, shape or form will not. But we have downplayed the risk with these guidelines to deal with if the geopolitical thing does not resolve itself.”

“We feel we are in control of all the important variables,” he concluded. “We believe the plan we have here and the guidelines we have provided are doable.”

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