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    Boeing Co (BA)

    Q2 2024 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$192.24April 1, 2024
    Final Price$186.70July 1, 2024
    Price Change$-5.54
    % Change-2.88%

    What went well

    • Boeing is increasing production rates and expects to reach 38 737 aircraft per month by year-end, driven by improvements in inventory management and operational stability. Deliveries have progressed from the mid-teens in April and May to 35 in June, with similar numbers in July. , ,
    • The planned acquisition of Spirit AeroSystems is proceeding well and is expected to enhance production stability and integration. Boeing is confident in Spirit's performance and is prepared to invest as needed for long-term stability. ,
    • Strong demand for airplanes continues to underpin Boeing's optimistic outlook, with customers eager to receive aircraft. This demand provides confidence in future cash flows once delivery performance stabilizes.

    What went wrong

    • Boeing faces delays in certification of the 737 MAX -7 and -10 variants, with expected certification shifted to the first half of 2025, potentially affecting delivery timelines and revenues.
    • Significant cash burn projected, with estimates ranging between $5 billion to $10 billion for the full year, raising concerns about liquidity and the company's ability to maintain its investment-grade rating.
    • Supply chain constraints and production challenges persist, including ongoing issues with suppliers requiring financial support, and potential labor disputes that could further disrupt production stability.

    Q&A Summary

    1. Cash Flow and Liquidity
      Q: What is the cash burn outlook and funding plans?
      A: Brian West acknowledged significant working capital drag and expects continued cash usage in the third quarter, improving in the fourth as deliveries ramp up. He did not specify if full-year cash burn would be closer to $5 billion or $10 billion but emphasized that cash flows can change meaningfully with delivery performance. Maintaining an investment-grade rating is the top priority, and Boeing is prepared to take necessary actions to protect it, including monitoring liquidity and maturities.

    2. Advances from Customers Impacting Cash Flow
      Q: How are customer advances affecting cash flow?
      A: Customers are applying excess advances and withholding some pre-delivery payments until delivery performance improves. The advance balance decreased by about $1 billion this quarter due to these factors. This situation should improve as deliveries become more predictable, and demand remains strong due to a shortage of airplanes.

    3. 777X Cash Burn and Entry into Service
      Q: What is the expected cash burn for the 777X program?
      A: The 777X is experiencing typical development cash usage, with an $800 million inventory build this quarter. Cash flow from the program is expected to turn positive about a year after entry into service as deliveries ramp up. A robust backlog and strong customer interest support the long-term payoff of these investments.

    4. Production Rates and Supply Chain Challenges
      Q: How are production rates recovering amid supply chain issues?
      A: Boeing is steadily ramping up 737 production, moving from single-digit rates earlier in the year to the mid-20s in June and July, with further improvements expected in August. The plan is to reach 38 per month by year-end, aided by the third production line and resumption of deliveries to China. Supply chain stability is managed carefully, with individual discussions and support as needed.

    5. Union Negotiations and Potential Strike
      Q: What is the status of IAM labor negotiations and strike risk?
      A: David Calhoun stated that Boeing is not planning for a strike and it's too early to assess gaps in negotiations. The company aims to support employees with investments in training and competitive wages, intending to avoid a strike through constructive discussions.

    6. Spirit AeroSystems Acquisition and Investment Plans
      Q: Will Boeing need to fund Spirit before acquisition, and what's the investment plan?
      A: Boeing is confident in Spirit's performance and does not currently anticipate additional funding before closing the acquisition. The company looks forward to integrating Spirit and is prepared to invest as needed for long-term stability to support the production rate ramp.

    7. Leadership Transition and Impact
      Q: How will leadership changes affect the company?
      A: David Calhoun expressed strong support for the appointment of Kelly as the new leader, highlighting his operational experience and industry knowledge. He does not anticipate significant leadership changes and believes Kelly will work closely with the existing team to continue recovery efforts.

    8. 737 MAX 7 and 10 Certification Timing
      Q: What's the timing for MAX 7 and 10 certification?
      A: The main milestone is completing remaining engineering work and certification tests, particularly deicing certification. Boeing is confident this will be completed, likely well before year-end, making the first half of 2025 a realistic target for certification.

    9. Advances to Suppliers and Cash Flow Impact
      Q: Are advances to suppliers increasing or peaking?
      A: Advances to suppliers are not materially changing and are within the company's forward planning. While adjustments are made on a case-by-case basis, there's no significant impact on cash flow expectations.

    10. Key Performance Indicators and Production Stability
      Q: How are KPIs progressing toward production rate goals?
      A: Slowing production has improved metrics like traveled work, with a step-change improvement as only clean fuselages now move through production. The focus is on reducing defects and ensuring stability to achieve planned production rates.

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