Boeing surprises with positive cash flow, flags supply-chain constraints

The Boeing logo is seen on the side of a Boeing 737 MAX at the Farnborough International Airshow in Farnborough, Britain, July 20, 2022. REUTERS/Peter Cziborra/File Photo

July 27 (Reuters) – Boeing Co (BA.N) on Wednesday surprised Wall Street by generating cash from operations in the second quarter and stuck to its cash flow goal for the year in a sign the planemaker was gradually overcoming costly production snarls.

The Virginia-based planemaker projected higher cash flow in the second half and next year from an expected step-up in deliveries of 737 and 787 jets.

The company said supply-chain constraints have capped its ability to ramp up jet production despite “significant” demand. It now expects to deliver fewer 737 MAX jets this year due to supply issues and delays in deliveries to Chinese customers.

Boeing’s shares were up about 0.1% at $156.05 in afternoon trade.

Resuming deliveries of 787 Dreamliners and clearing inventories of its cash-cow 737 Max are vital for Boeing to emerge from overlapping crises: the pandemic and the grounding of its best-selling model after fatal crashes. This has drained its cash and saddled Boeing with debt.

Chief Executive Dave Calhoun said Boeing was working with regulators for certifications by the end of this year of the shorter 737 Max 7 and longer 737 Max 10 variants, and was in “final stages” of preparing to restart 787 Dreamliner deliveries.

“We are on the verge of returning to the 87 delivery process, Calhoun said on an investor call, but declined to give a timeline for resumption of the wide-body jet’s deliveries.

American Airlines (AAL.O) last month said the deliveries are expected to resume in early August.

SUPPLY-CHAIN CONCERNS

The delivery delays have made it tougher for Boeing’s customers to ramp up capacity and keep up with a rebound in travel demand. The company and its rival Airbus (AIR.PA) are also grappling with supply-chain concerns.

Those concerns dominated last week’s Farnborough Airshow where suppliers and manufacturers said they were scrambling to source everything from raw materials to small electronic components to keep production moving. read more

“We continue to experience real constraints,” Brian West, Boeing’s chief financial officer, told investors.

West said the company has increased its presence at the facilities of suppliers and set up teams of experts to address supply crunch in a number of areas, including engines, raw materials and semiconductors.

While the company has not seen any pullback in demand for aircraft, it said supply bottlenecks will determine production as well as delivery rates for 737 and 787 jets.

Boeing said it aims to stabilize 737 production rate at 31 a month and expects MAX deliveries this year to be closer to the “low 400s”, down from about 500 estimated earlier.

It posted a wider-than-expected adjusted loss of 37 cents per share in the quarter through June due to charges at its defense, space & security business unit. Operating cash flow came in at $81 million in the quarter.

Overall, Boeing burned $182 million in cash in the quarter through June, far lower than an outflow of $3.6 billion in the first quarter. Analysts had expected a cash burn of $1.2 billion, as per Refinitiv data.

“While Q2 results were still far from perfect, this is Boeing’s cleanest quarter in a while,” Melius Research analyst Robert Spingarn said.

Boeing’s cash flow has become a focal point for investors, as the planemaker borrowed heavily to wade through successive crises caused by the 737 MAX grounding and the pandemic. The company’s debt stood at $57.2 billion as of June 30.

Reporting by Abhijith Ganapavaram in Bengaluru and Rajesh Kumar Singh in Chicago; Editing by Saumyadeb Chakrabarty, Nick Zieminski and David Gregorio

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