On Wednesday local time, aircraft manufacturing giant Boeing released its third quarter report, which is also the first financial report since the new CEO took office. Unfortunately, he gave an even worse performance report card.
Affected by the ongoing strike by engineers, Boeing's third quarter revenue was $17 billion, with a loss of $6.17 billion and a free cash flow deficit of nearly $2 billion, and multiple data points fell short of analysts' expectations.
This is the first time Boeing has suffered such a significant loss since the fourth quarter of 2020. After the financial report was released, Boeing's stock price immediately plunged, dropping 3.8% in Wednesday afternoon trading, and then slightly recovering lost ground, closing down 1.76% on the same day. However, news of a new round of salary negotiations breaking down and strikes continuing has once again dealt a heavy blow to Boeing's stock price, with Boeing falling 3.86% before Thursday's US stock market opened. Since the beginning of the year, Boeing's stock price has fallen by nearly 40%, and its market value has evaporated by more than 60 billion US dollars.
This year seems to be a tumultuous time for Boeing - the plane's emergency hatch has fallen off, the spacecraft has encountered technical malfunctions, it has been targeted by both the US Department of Justice and FAA, and the two month long workers' strike has not yet ended... The CFO admitted in a conference call that Boeing will continue to incur losses throughout next year.
Boeing CEO Ottoberg stated that Boeing needs time to restore its former glory and emphasized that it will focus on fundamentally changing its culture. But under the dual pressure of strikes and rating downgrades, can Boeing survive the crisis in the near future?
Continuous deterioration of cash flow
According to Boeing's third quarter financial report, the company achieved revenue of 17.84 billion US dollars, a year-on-year decrease of 1%; Net loss of 6.174 billion US dollars, with a year-on-year expansion of 2.77 times, the largest loss since 2020; The loss per share was $9.97, which increased by 2.7 times year-on-year.
In the announcement, Boeing attributed the poor performance in the third quarter to the strike of the International Association of Machinists and Aerospace Workers (IAM) in the United States and the decline in revenue in the commercial aircraft and defense sectors.
Investors are more concerned about the cash flow situation, but as of the third quarter, Boeing's operating cash flow was -1.345 billion US dollars and free cash flow was -1956 billion US dollars, and the continuous bleeding is expected to continue until next year.
Boeing Chief Financial Officer Brian West stated during the earnings conference call that free cash flow in 2025 will be significantly better than in 2024, and it is expected that cash usage will improve in the first half of the year, turn positive in the second half, and then return to healthy cash flow levels when stable production resumes at the end of the year. An analyst asked sharply during a conference call whether this means Boeing will continue to lose money for the whole of next year, and West replied, "Yes.
Having weathered the pandemic, why has Boeing fallen back into its biggest loss since 2020?
Anbang Think Tank researcher Xu Zijie analyzed to 21st Century Business Herald reporters that this year, the Boeing 737 MAX has experienced multiple safety accidents and has been subject to scrutiny by multiple US agencies. In addition, Boeing has reached a plea agreement with the US Department of Justice. Meanwhile, news of retaliation against whistleblowers and layoffs continues to emerge. This series of domino like scandals has led to delays in Boeing's deliveries and a decrease in new orders. Now, Boeing is still facing the dilemma of employee strikes. In this context, the continuous deterioration of financial statements is an inevitable result.
This year, Boeing has borrowed $10 billion to stabilize its cash reserves, but in the first three quarters of this year, Boeing's capital outflow exceeded $10 billion.
In recent weeks, rating agencies such as Moody's, S&P, and Fitch have all stated that they are considering downgrading Boeing's credit rating to junk level.
Xu Zijie said that Boeing is only one step away from garbage level, and if it is downgraded to garbage level despite continuous losses, its financing costs will increase, which will undoubtedly add insult to injury for Boeing.
Boeing executives lack a sense of crisis. Protecting our investment grade is the top priority, "West said in a conference call. The company is actively engaging with rating agencies, which is a constructive dialogue and helping us develop response plans.
Last week, Boeing announced plans to raise $25 billion through issuing bonds over the next three years. Wall Street analysts estimate that Boeing needs to raise $10 billion to $15 billion to maintain its rating and avoid falling into junk status.
Xu Zijie believes that Boeing's financial situation may further deteriorate in the future. In the first three quarters of this year, Boeing's asset liability ratio (total liabilities/total assets) was 1.71, compared to 1.13 at the end of last year. It can be seen that the growth rate of Boeing's liabilities exceeds that of its assets. In terms of liabilities, long-term liabilities increased by 12.89% compared to the end of 2023, from $47.103 billion to $53.176 billion, which is the main increase in the company's liabilities, indicating an increase in its debt pressure.
The recovery path is obstructed and long
On Wednesday local time, Boeing released its dismal third quarter report, stating that the management and union had reached a new temporary agreement, including a 35% salary increase, a $7000 signing bonus, and some benefits. Workers will vote on the new agreement later that day. To some extent, this has sent a positive signal to the market that both labor and management have reached an agreement and ended the strike.
However, the final voting results showed that 64% of Boeing workers opposed the agreement because the latest agreement still did not restore the fixed benefit pension frozen ten years ago, which means the six week strike will continue.
At present, this strike has led to the shutdown of most Boeing aircraft, including the best-selling 737 model. Analysts estimate that the strike causes at least $1 billion in monthly losses to Boeing.
Moreover, amidst tight cash flow and strikes, Boeing's new product launches have been repeatedly postponed, including the latest 737 MAX, 777X, and key defense projects such as the new Air Force One and training aircraft.
We are clearly standing at a crossroads, "Boeing CEO Otterberg said in a conference call, stating that Boeing needs to reset priorities and create a more streamlined and focused organization. The first thing to do now is to stabilize the business, restart the manufacturing and delivery of high-quality aircraft, and ending the strike is the first step towards achieving this goal. At the same time, he also talked about rebuilding Boeing's engineering culture, bringing management closer to engineering laboratories and factory workshops.
However, Ottoberg also admitted that even if the union votes to end the strike, it will take time to resume production, and it is currently unclear how long Boeing can achieve its monthly production target of 38 737 aircraft.
Based on the financial officer's statement that Boeing will continue to incur losses next year, it will take some time for this aircraft manufacturing giant to recover and get out of the quagmire.
In Xu Zijie's view, the problems exposed by Boeing Company now have a long history and are already "hard to reverse". Although Boeing has changed its management, the big ship is difficult to turn around, and it will indeed take a long time to make changes in culture and management thinking. Training employees, establishing new systems, new regulatory frameworks, and so on, are all difficult to see results in the short term.
Changing a company's culture is often much more abstract than changing its technology, and there is also more uncertainty involved. At the same time, strikes and safety scandals that damage its reputation have added resistance to Boeing's turnaround, "said Xu Zijie.