Still struggling with a wobbly supply chain and production slowdowns, Boeing lost $663 million in the fourth quarter despite Wall Street analysts’ expectations of a profit.
Yet CEO Dave Calhoun was upbeat as he discussed the financial results Wednesday, choosing to focus on the gusher of cash Boeing is generating rather than the bottom-line loss.
“All things considered and reflecting on these last few years, we’re feeling pretty good about where we stand heading into this year,” Calhoun said in a teleconference with analysts.
On the outlook for 2023, Calhoun conceded that “it’ll be a bumpy year for sure” with continued delays in the supply chain, but “I have confidence that we’ll get through this year.”
He also expressed optimism about China reopening to Boeing jet deliveries.
In an interview Wednesday morning on CNBC, Calhoun commented only superficially on a looming court hearing in Texas over responsibility for the 737 MAX crashes.
And he unexpectedly appeared to take a swipe at the Federal Aviation Administration, saying he favors privatizing the agency following its recent operational outage, which briefly caused air travel chaos in the U.S. Boeing later walked back the impression left by that remark.
China opening “a major event in aviation”
Calhoun was asked on CNBC about the looming arraignment of Boeing on Thursday in a court in Fort Worth, Texas — where a judge has ordered Boeing to face the families of the 346 people who died in two 737 MAX crashes.
Boeing will be asked to enter a plea to charges that were settled by the Department of Justice in January 2021, with Boeing admitting responsibility for the crashes yet escaping prosecution.
Calhoun offered sympathy to the families but passed on the legal issues.
“My reaction to the families is always the same, just nothing but heartbreak,” he said on CNBC. “Any and every hearing they want to express those views is OK with me.”
But the legal aspects of the case, he added, are “not a subject I’m qualified to talk about.”
He was more comfortable talking about the prospects for lifting Boeing’s current exclusion from the China market.
Amid tension between the U.S. and China, Boeing has delivered no passenger planes to Chinese airlines since the MAX was grounded in 2019 after the crashes.
After a strict lockdown during the global pandemic, China reversed course this month and reopened its borders.
And Chinese airlines this month resumed flying some of their 737 MAXs that were grounded since the second crash in 2019.
“The opening up of China is going to be a major event in aviation and the aviation industry,” Calhoun said on the earnings call. “This is a serious bump for everybody.”
He stressed that China needs the MAX to satisfy its suddenly burgeoning domestic air travel demand.
Calhoun said he expects Chinese airlines to focus first on getting back into the air about 100 MAXs still grounded in China since the crashes.
After that, he said, deliveries of the 737 MAX should resume.
Chief Financial Officer Brian West said on the call that Boeing still has about 250 previously grounded MAXs in inventory, of which 138 are for Chinese customers. He said he expects most of those will be delivered by the end of next year.
Minimizing the loss
Before the results were released, S&P Global Market Intelligence data showed the consensus estimate among financial analysts was for a quarterly profit of about $469 million.
Boeing’s share price fell in early trading Wednesday, following the surprise quarterly loss of $663 million, or $1.06 per share. That compared with a huge loss in the same quarter the previous year of $4.2 billion, or $7.02 per share.
Boeing’s stock recovered later Wednesday and closed up 70 cents, or 0.33%, at $212.68.
Unlike the prior three quarters of 2022, there were no new write-offs to account for operational problems.
And Boeing’s revenue of $20 billion for the quarter came in close to expectations, up 35% compared with a year earlier.
Boeing’s leadership emphasizes cash flow as the key financial metric to watch as Boeing strives for recovery.
In the last quarter, company operations generated $3.1 billion in free cash flow — the cash left after paying operating costs and expenditure on equipment.
Cash flow for the year was $2.3 billion, the first positive yearly cash flow result since 2018.
Boeing’s net debt fell to $39.8 billion, down from $42.9 billion in the third quarter.
Calhoun called the fourth-quarter results “solid.”
Despite some production issues, Boeing reaffirmed its projection of free cash flow in 2023 between $3 billion and $5 billion and maintained the targets set in November for increased jet deliveries in 2023.
Boeing has acknowledged that although 787 deliveries resumed in August after a long stoppage due to the discovery of quality defects at the fuselage joins, supply chain issues have slowed the pace of ramp up.
Parts delays slowed 787 Dreamliner production in South Carolina way down in December, and a low production rate continued this month.
As a result, CFO West said the company has added another $600 million to its estimate of abnormal production costs on the 787, bringing to $2.8 billion the extra costs accrued since deliveries of the jet were first halted in fall 2020.
Along with a $3.5 billion charge for the 787 delivery halt in the fourth quarter of 2021, that brings the running total cost of the 787 problems to $6.3 billion.
Boeing still plans to ramp up 787 production to five jets per month late this year, and to double that rate by 2025 or 2026.
It expects to deliver 70 to 80 Dreamliners this year. Many will come from the inventory of about 100 jets still in storage and awaiting extensive rework to fix the fuselage defects.
Boeing said its other critical commercial jet program, the 737 MAX, is “stabilizing” at a production rate of 31 jets per month and is targeting about 50 jets per month “in the 2025/2026 time frame.”
This year, Boeing projects delivering 400 to 450 MAXs.
And the latest MAX variants, the MAX 7 and MAX 10, with newly granted approval from Congress to ease the way, are expected to be certified this year and next year, respectively.
A long road back
Rob Stallard, a financial analyst with Vertical Research Partners, wrote in a note to investors after the results posted that he’s “not entirely comfortable” with Boeing showcasing the strong cash flow and ignoring yet another quarterly loss.
He wrote that cash flow will naturally be strong as Boeing clears its “bloated inventory” of parked planes built much earlier but only now being delivered. Yet brushing off the loss won’t sit well with investors, he said.
Added to enormous losses of $1.2 billion in the first quarter and $3.3 billion in the third, the fourth quarter sealed another money-losing year in 2022, Boeing’s fourth straight year of annual losses.
The total loss for 2022 came in at $5.1 billion, a bigger loss than the $4.3 billion in 2021.
Before that, with the impact of the COVID-19 pandemic on air travel, Boeing lost $11.9 billion in 2020. And following the second 737 MAX crash, it had lost $636 million in 2019.
The company’s last profitable year was 2018, when it made $10.5 billion.
Calhoun acknowledged that getting back to that level of profitability remains a long way off.
“While we have made meaningful progress, challenges remain and we have more work ahead to drive stability in our operations and within the supply chain,” he wrote in a memo to employees Wednesday.
Still, he predicted the year ahead will bring further progress toward recovery.
“We’re well on our way to restoring the operational strength we expect of ourselves at Boeing,” Calhoun wrote. “We’re confident in our path ahead.”
Boeing’s total 2022 revenue was $66.6 billion, up 7% from $62.3 billion in 2021 — yet still far off Boeing’s 2018 peak of $101 billion.
Peter McNally, an analyst at investment firm Third Bridge, in a note to investors Wednesday morning cited “some significant progress in key areas” while noting that “execution has been mixed and the aerospace supply chain’s ability to deliver remains uncertain.”
“This will remain a dynamic industry,” McNally said.
Calhoun’s remarks on CNBC in favor of privatizing the FAA came out of left field and perhaps overstated his intention.
This month, an FAA computer system outage grounded the entire U.S. airline system for several early morning hours and caused the cancellation of thousands of flights.
Calhoun said that to fix the nation’s digital infrastructure, he would “probably favor” privatizing the FAA, “simply because of the efficiency and speed.”
That’s a puzzling argument to make so soon after recent computer problems at a major private airline far exceeded those at the government agency.
The FAA glitch was not nearly as massive as that caused by the failure of the crew-scheduling computer system at Southwest Airlines, which wreaked havoc with flights and ruined Christmas holiday travel for many thousands of passengers.
And perhaps especially on the eve of that court hearing in Texas about the MAX crashes, it seemed tone deaf for the Boeing CEO to seem to be calling for change at the safety regulator.
Late Wednesday, Boeing attempted to counter that impression, saying Calhoun was referring only to “engaging industry to support digital infrastructure advancements within Air Traffic Control technology.”
“He was not advocating for privatization of the FAA,” a spokesperson insisted.
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