Boeing reported its first quarter 2024 results and held its earnings call earlier today. The results, while slightly better than the first quarter 2023 in terms of the net loss, showed lower overall sales and a significant use of free cash flow during the quarter.
Sales for Boeing fell for the first time in 7 quarters, with sales for 1Q 2024 coming in at $16.6B, versus $17.9 billion in 1Q 2023. The net loss narrowed on improved performance in Global Services and Defense, which helped narrow the quarterly loss year over year to $1.13 per share from a loss of $1.27. Free cash flow, however, dropped precipitously from negative 0.8 billion in 1Q 2023 to $3.9 billion in 1Q 24.
Revenues for Boeing Commercial Airplanes were down $2 billion year-over-year for the 1st quarter, coming in at $4.7 billion against $6.7 billion in 2023. Operating margin fell further to (24.6)% from (9.2)% in 2023, reflecting the Alaska Airlines door plug blow-out incident on the MAX 9 and the subsequent production decrease as the company slowed production to improve quality.
The company delivered 83 airplanes in the first quarter, secured 125 net orders, and increased backlog to $448 billion representing over 5,600 aircraft.
Boeing’s defense unit reported an increase in sales from $6.5 billion in 1Q23 to $7.9 billion, with operating margins rising from (3.2)% to 2.2% year-over-year. The company took in orders of $9 billion, bringing defense backlog to $61 billion.
Boeing Global Services booked a modest increase in revenues from $4.7 billion in 1Q23 to $5.0 billion in 1Q24, with operating margins growing to 18.2% from 17.9% for the comparable prior year period.
During the quarter, Boeing’s cash and marketable securities fell from $16.0 billion to $7.5 billion, as it paid down debt, which fell from $52.3 billion at year end to $47.9 billion. The company has paid down its near-term maturities, and is focused on maintaining its investment grade credit rating.
Looking Ahead
Boeing has dramatically slowed the production rate of the 737 MAX while it works with the FAA to put a new quality system in place with metrics that will allow either party to quickly see at a glance whether things are going well or additional work needs to be done. The company is working on those quality metrics and expects completion in the second quarter.
The main difficulty with the 737 MAX program has been the quality of fuselages being delivered from Spirit AeroStructures. Boeing’s plans to acquire Spirit are in the negotiation process, while at the same time it has dispatched engineers and technicians with findings of quality problems on the fuselage to ensure they are addressed in Wichita prior to reaching Seattle to eliminate traveled work and problem remediation.
Dave Calhoun indicated that the company has already made significant progress in that regard, has completed a review of fuselages in inventory, and will now accept only “clean” fuselages in the production process. For the first quarter, production rates were well short of the nominal plan of 38 per month, and the company plans to ramp-up to that rate during the second half of the year.
As reported yesterday, Boeing has loaned $425 million to Spirit in short-term funding, to be repaid during the second half of the year, to enable the company to address the quality issues head on and ship only “clean” fuselages to Renton.
The 787 program, which had just returned to a rate of 5 per month, will fall short again due to supply constraints. A shortage of heat exchangers, which were formerly produced in Russia until the Ukraine conflict, are now built by another supplier that has had ramp-up difficulties, and will likely take until the fourth quarter to resolve. This will keep 787 production rates lower.
The other problem impacting the 787 is a shortage of seats, which as buyer furnished equipment doesn’t impact Boeing financially, but may result in a few 787s that are delivered remaining on Boeing’s ramp as customer-owned airplanes waiting for seats.
The 777-X program appears to be progressing on its latest schedule, albeit the aircraft is already five years late in deliveries.
The Bottom Line
The first quarter for Boeing was a cash flow disaster, with losses slightly better than expected due to better performance in Defense and Global Services. Nonetheless, the challenges for Boeing remain daunting for 2024, as a make or break year for the company. While the company has liquidity and an additional $10 billion in undrawn lines, it cannot bleed cash like it did in the first quarter for very long, and constraints to sales in the second quarter are similar to the first quarter.
The second half of the year needs to show strong progress and a rebound in performance for Boeing, but those elements are largely out of its control. It must convince Spirit to build “clean” fuselages in Wichita and convince the FAA that its quality system has the right metrics to monitor and correct potential problems before they occur. The company appears to be making progress, but these types of activities can often slip with respect to timing. Boeing’s cash position isn’t robust enough if additional slips to the right occur.
