Boeing, the renowned U.S. planemaker, is facing higher cash burn than anticipated due to production constraints related to its 737 MAX safety crisis. The company’s finance chief, Brian West, revealed that Boeing’s cash burn in the first quarter will range between $4 billion and $4.5 billion, exceeding their initial plans from January. This unforeseen financial setback means that Boeing will need more time to achieve a key financial target for the coming years.
The safety issues surrounding the 737 MAX have not only put Boeing under the scrutiny of U.S. regulators but have also frustrated airlines that were already grappling with delivery delays from both Boeing and its rival Airbus. The order backlogs have forced airline executives to cut routes and seek additional aircraft to meet the growing demand. Michael O’Leary, CEO of Ryanair, a key European Boeing customer, expressed his concern about the prolonged delivery delays and revealed that he was meeting with senior company executives to address the issue.
The production constraints are a result of U.S. regulatory restrictions that limit Boeing’s 737 production to 38 aircraft per month. However, West mentioned that Boeing is currently producing fewer than the allowed amount, although he did not provide further details. He emphasized that the company is deliberately slowing down production to ensure safety and quality standards are met. This decision will have consequences for Boeing’s cash flow and working capital, leading to a delay in achieving their goal of an annual cash flow of approximately $10 billion by 2025 or 2026. West projected that this target would be met later, within the 2025 to 2026 window.
The manufacturing quality of Boeing and its major supplier, Spirit AeroSystems, has come under intense scrutiny following a mid-flight panel blowout on an Alaska Air flight. In an effort to gain control over the supply chain, Boeing is considering buying back its former subsidiary Spirit, which it spun off in 2005. West stated that any potential deal would be funded through a mix of cash and debt, rather than shares. However, there are obstacles to overcome, as Spirit owns several plants that supply Airbus, and Boeing may require Airbus’ assistance to disentangle those ties.
The impact of delivery delays has also affected Boeing’s margins. West disclosed that the commercial airplanes business is expected to have negative margins of around 20% in the first quarter due to compensating customers for the delays. Although margins are projected to improve throughout the year, they will still be negative overall in 2024. To ensure quality control, Boeing plans to only accept fully conforming fuselages from Spirit in the future. Currently, Spirit assembles the fuselage for the 737 before it is shipped to a Boeing factory in Washington state for completion. West acknowledged that a change in prioritization is necessary, stating, “For years, we prioritized the movement of the airplane through the factory over getting it done right, and that’s got to change.”
The preliminary report from U.S. investigators regarding the blown-off panel on the 737 MAX 9 jet revealed that four key bolts were missing. Despite these challenges, Boeing’s shares rose by 2.3 percent following West’s statements, indicating investor confidence in the company’s ability to navigate these obstacles.
In conclusion, Boeing’s ongoing safety crisis with its 737 MAX aircraft has led to higher-than-expected cash burn and production constraints. The company has recognized the need to prioritize safety and quality control, which has resulted in delivery delays and financial setbacks. However, Boeing remains committed to addressing these issues and ensuring long-term success. As the company continues to work towards resolving its safety concerns and improving production processes, industry stakeholders will be eagerly watching for signs of progress and a return to normalcy for one of the world’s leading planemakers.
