Air transport

Boeing issues liquidity warning after production slowdown

The cfo expects an outflow of between USD 4 billion and 4.5 billion in the first quarter and production of the Max 737 under 38 aircraft per month

by Mara Monti

20 March 2024

4' min read

Key points

Boeing crisis hits airlines
LBoeing's reorganisation and ties with Airbus
The Alaska Airlines accident and Boeing's safety culture
737 Max production under 38 aircraft per month

4' min read

Boeing is sounding the liquidity alarm after the production slowdown of the 737 Max imposed by the US aviation authorities as a consequence of the accident on 5 January. Chief Financial Officer Brian West, speaking at a conference in London, predicted that the group will burn through more cash than estimated in January, between $4 billion and $4.5 billion in the first quarter. Estimates at the beginning of the year were $1 billion. Analysts are more pessimistic and expect an outflow of at least USD 5 billion.

The plan to reach the target of $10 billion cash flow by 2025-26 will take longer, West said at a Bank of America conference. Also postponed is the monthly production target of 50 Max by 2025, a target that will instead be kept below 38 aircraft per month, a level reached at the end of 2023. The CFO recalled that as of this month, Boeing had stopped accepting fuselages from Spirit AeroSystems because parts were missing or in need of repair, which was another reason for the production slowdown. 'We are deliberately slowing down to get it right,' West told the conference. 'We are the ones who made the decision to limit the target for the 737 programme... and we will feel the impact in the coming months.

CFO West: 'Hard to make short-term forecasts'

"We are not able to make short-term forecasts because of the work we are doing on the group," West said. "We will become more precise but it will take time. Already in January, the company had suspended its financial forecast for 2024 after the accident. West predicted that the margins of Boeing's commercial aircraft division will be negative by about 20 per cent in the first quarter, the worst performance since late 2021.

Boeing crisis hits airlines

The Boeing slowdown is beginning to make itself felt among airlines calling for new planes to adapt to the strong demand for travel. As in the case of Ryanair CEO Michael O'Leary, who said at a conference in Brussels that capacity in Europe next summer will be hampered by delivery delays at Boeing and engine problems plaguing Airbus planes. The Irish low-cost airline flies an all-Boeing fleet and has been forced to reduce some targets and destinations for this summer due to a shortage of planned aircraft.

Industrial Reorganisation

In an attempt to stem the crisis after the accidents that halted the production of one of its most lucrative aircraft, the 737 Max, Boeing is also putting in place a radical industrial reorganisation. One of the first moves the American manufacturer is considering is to bring its main supplier, Spirit Aerosystems, which was spun off in 2005, back into the Boeing fold. In this regard, West stated that Boeing will not use equity to finance a potential acquisition, valued at around $3.5 billion ('We have the money for the merger'), but will use a 'mix of cash and debt', adding that the group's 'investment grade' credit rating remains a priority. At the end of 2023, the group had recorded cash flow of $4.4 billion. To make cash, Boeing is also considering the sale of some units of the Space and Defence division.

Spirit Aerosystems and ties with Airbus

Before starting negotiations to bring the supplier of the 737 Max spindles 'home', the American manufacturer wants to reduce its ties with competitor Airbus, which accounts for one fifth of Spirit's turnover.

What will happen to these assets will be one of the key steps of the deal as Boeing's supplier also produces several parts for Toulouse. The most important contract concerns the production of wings for the A220, the scaled-down version of the single-aisle Airbus family. These parts come out of Spirit's factories in Northern Ireland: Airbus has several sites in England and North Wales where the wings of the Toulouse-based manufacturer's family of aircraft are produced.

In the US, Spirit also manufactures a fuselage section and wing parts for the A350 at its plant in Kinston, North Carolina, and other components are dedicated to the European manufacturer at its plant in Prestwick, south of Glasgow in Scotland. Spirit's order backlog, at the end of the fourth quarter of 2023, amounted to around USD 49 billion and, according to its latest annual report, 19% of its revenue comes from contracts with Airbus.

Spirit spokesman Joe Buccino confirmed negotiations with Airbus, but he would not be the only one: 'While commercial negotiations with Airbus continue, many options remain viable,' Buccino said.

The Alaska Airlines accident and Boeing's safety culture

The story of the accident on 5 January, when an Alaskan Airlines tailgate burst during take-off, goes on. The number one of the US Federal Aviation Administration (FAA), Mike Whitaker, said that Boeing must improve its safety culture and address quality problems before allowing the 737 Max production to be increased. At the end of January, the FAA had made an unprecedented decision, requiring Boeing not to increase production of the 737 Max until quality and safety issues were resolved. Whitaker added that the agency will only allow an increase if Boeing 'operates a quality system in a safe manner' adding that it has the tools to hold Boeing 'accountable and fully intends to use them'.