Boeing sees massive cash drain as 737 Max episode takes toll

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.

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. For the full year, free cash flow will be in the low-single-digit billions of dollars, West said. Analysts expected $5 billion, according to data compiled by Bloomberg.

The outlook reflects a shift in priorities at Boeing as it grapples with the aftermath of a near-catastrophic fuselage failure on a 737 Max 9 aircraft early this year. The company has slowed jet deliveries as it pours resources into eradicating so-called traveled work from across its commercial product lines, West said. The out-of-sequence installation of parts is at the heart of a quality breakdown that has spurred a painstaking review of its manufacturing by U.S. regulators.

“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 expects margins for Boeing’s commercial aircraft business will be negative to the tune of about 20% in the first quarter, the worst performance since late 2021. While the losses should improve over subsequent months, margins should remain negative for 2024, he added.

Regulators have capped production of the 737, Boeing’s largest source of cash, until they’re satisfied Boeing has a firm grasp over the quality of work in its production system. 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.

As of March 1, Boeing stopped accepting fuselages from Spirit AeroSystems Holdings Inc. that lack parts or require repairs, West said. While that should cut down on the workload for Boeing’s mechanics, in the near term “there might be variability of supply,” he said.

Boeing shares advanced 0.5% as of 9:56 a.m. in New York. The company is set to report earnings for the first quarter in late April. Weeks after the January incident, Boeing declined to provide its usual annual target for 737 deliveries 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. O’Leary said he was meeting with executives from the U.S. planemaker later on Wednesday.

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