Boeing’s BA -2.33% glass still looks half empty, but there are signs of change.
On Wednesday, the plane maker said it lost $4 billion in the fourth quarter—half the size of the hit for the same period of 2020 but much larger than Wall Street analysts were forecasting. Even as Boeing overcame its problems with the 737 MAX, deliveries of the popular 787 Dreamliner slowed to a trickle last year due to a raft of factory defects. This forced the company to record a $3.5 billion charge for compensating customers, plus $285 million in abnormal production costs that are forecast to eventually add up to $2 billion. This is twice what was initially expected.
Yet the company also surprised analysts with a long-awaited milestone: For the first time since 2019, it had positive free cash flow. Boeing’s value in the futures market whipsawed as investors weren’t sure whether to interpret the results as good or bad overall, but they settled clearly on “bad” when the stock market opened.
For valuing aerospace stocks, free cash flow is often preferred to earnings themselves, because calculating the profitability of businesses that depend on hugely costly product launches can be more art than science. In Boeing’s case, extra 787 expenses are having an immediate impact on quarterly earnings, even though the company isn’t spending all the money right away. Cash probably gives a more accurate picture of the underlying business.
Indeed, analysts seem to believe Boeing is about to turn a corner, despite its current problems: 73% of them rated the stock a “buy” in December, the highest number since early 2019. After losing altitude versus Airbus’s EADSY -0.60% stock for six months, it does seem more reasonably valued.
Boeing restarted production of the now-infamous MAX in May and had set itself the target of making 31 units a month in “early 2022.” This seems like a very ambitious goal, but the company said Wednesday that it is still on the table. In December the production rate reached 26 a month.
Bumper sales of the narrow-body aircraft translated into a jump in advance payments in the fourth quarter, and confirmed that Boeing doesn’t need to invest in a new model right away to remain competitive with the Airbus A320 for short-haul flights—though it still needs an alternative for medium haul. Earlier this month, Allegiant Air ordered 50 MAX jets, a shock move because it broke with the U.S. budget airline’s tradition of buying used Airbus aircraft. While the availability of the MAX in the form of parked planes puts pressure on its price, it may also win customers by ensuring quick deliveries at a time of supply shortages.
“I hate that we have a lot of inventory. On the other hand, it will probably serve us well in what is likely to be a robust recovery,” Boeing Chief Executive David Calhoun said Wednesday.
Investors can’t assume that the Chicago-based company’s dark years are over, though. Its recent operational problems extend to other products like the KC-46A tanker, and it has greater exposure than Airbus to wide-body planes, which puts it at greater risk from new Covid-19 variants.
It may still be too soon to book this ticket, but at least it looks more likely that the flight will eventually take off.
Write to Jon Sindreu at [email protected]
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Appeared in the January 27, 2022, print edition as ‘Troubled Boeing Inches Closer to Takeoff.’
