Boeing shares fall after CFO backs away from 2024 cash flow target

(Bloomberg) — Just months after ending a five-year hiatus, Boeing has once again stopped delivering planes to customers in China, a new roadblock in the company’s efforts to restore its damaged reputation.

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The suspension stems from requests from the Civil Aviation Administration of China for additional information related to batteries used in cockpit voice recorders, Brian West, Boeing’s chief financial officer, said at a Wolf Research conference on Thursday.

As a result, Boeing has not delivered planes to China recently, depriving the plane maker of a major source of funds. Full-year cash flow in 2024 is now expected to be negative, reversing a previous outlook for positive full-year cash generation, West said.

“There will be no step forward” in aircraft deliveries in the second quarter, West said.

News of the China shutdown and a weak financial outlook sent Boeing shares tumbling 7.6% in New York on Thursday, the biggest rise in more than four months. The stock is down 34% this year, the second-worst performance in the Dow Jones Industrial Average.

The holdup with the Chinese Aviation Safety Regulatory Authority represents a new battle front for Boeing, as it works to recover from the January accident, in which a 737 MAX fuselage panel exploded mid-flight.

The planemaker has been criticized by regulators, legislators and airlines, as the incident highlighted quality and safety lapses at its factories and led to the imminent departure of CEO Dave Calhoun as well as the exits of Chairman Larry Kellner and Chairman of the Board of Directors. Its commercial aircraft business.

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The company is expected to submit a comprehensive plan to address production vulnerabilities to the US Federal Aviation Administration next week. FAA Administrator Michael Whitaker is scheduled to brief lawmakers on Boeing’s plan on June 4, according to people familiar with the matter.

Deliveries to China are a vital source of cash for the planemaker. The market is also key to Boeing’s shrinking inventory of 737 MAX planes already built due to the global grounding caused by two fatal accidents in 2018 and 2019 and the COVID-19 pandemic that followed.

Boeing only resumed deliveries of 737 MAX planes to China in January, nearly five years after Beijing grounded the plane following two deadly crashes in Indonesia and Ethiopia.

West said in April that the company would generate free cash flow in the “low billions of dollars” for the full year as deliveries increase again. He also expected cash burn in the second quarter to improve sequentially.

He said Thursday that Boeing’s cash burn in the current period would be similar to or worse than the first quarter, when Boeing topped nearly $4 billion.

The halt in deliveries in China and the slow rate of 737 MAX production will bring the plane’s second-quarter shipments in line with the first three months of the year, West said. Boeing delivered 83 aircraft during that period, the lowest since mid-2021.

Improvement coming

Despite the setback, West said cash flows will turn positive in the second half of the year as 737 production ramps up and factory improvements begin.

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“Our operating and financial performance will improve and accelerate as we go through the third and fourth quarters,” West said. “I understand that everyone wants things to go faster, but it is a long-term process, and we have to be disciplined.”

West said the company still expects to win certification for its wide-body 777X model in 2025. Some customers were concerned that that model — already five years late — could be delayed further as Boeing grapples with its many problems. The company is also facing supply issues for parts on the 787, including heat exchangers and seats, although the issues will not affect the overall delivery schedule for the widebody model, West said.

West said he remains optimistic that Boeing can “get something done” with Spirit AeroSystems Holdings Inc. In the second quarter to re-integrate its most important resource. He said that while “nothing is off the table” regarding financing the deal, the company is keen to maintain its investment-grade credit rating.

Boeing’s cash burn in the first quarter prompted ratings agency Moody’s to cut the company’s credit rating to the brink. The planemaker then raised $10 billion from the bond sale.

–With assistance from Alison Verserel.

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