Boeing has tough quarter after 737 MAX grounding, COVID-19

A humpbacked cargo plane for oversize freight.

Boeing Co.’s specially modified jumbo jet for carrying oversize structures of the 787 Dreamliner to assembly plants in Washington and South Carolina is called the Dreamlifter. The past 18 months, culminating in Wednesday’s first-quarter financial results, has been a nightmare.

The aircraft manufacturer reported a $640 million net loss, and an adjusted earnings per share loss of $1.70, stemming from a 26% drop in revenue due to the coronavirus crisis and the yearlong grounding of the 737 MAX after two deadly crashes within five months. 

Chicago-based Boeing (NYSE: BA) warned that business will be depressed for some time. The slow road to global economic recovery means limited travel for the foreseeable future, which translates into airlines not seeking new airplanes and services. Airlines, struggling to stay in business, are delaying orders, slowing delivery schedules and deferring elective maintenance in an effort to preserve cash.

CEO David Calhoun earlier warned that air travel won’t return to 2019 levels for two or three years and airline growth beyond that will take a couple more years, echoing several airline executives and analysts.

Boeing said it is adjusting to the new reality by reducing commercial airplane production rates, undertaking an organizational restructuring, and reducing staffing levels through a voluntary leave program and additional workforce cuts, as necessary.

Like its customers, the airframer is borrowing money, reducing discretionary spending and operating costs, reducing or deferring research and development, suspending stock buybacks and dividends, and eliminating CEO and chairman pay for the year, but Boeing said additional liquidity will be critical for the aerospace sector.

“While COVID-19 is adding unprecedented pressure to our business, we remain confident in our long term future,” Calhoun said in a statement. “We continue to support our defense customers in their critical national security missions. We are progressing toward the safe return to service of the 737 MAX, and we are driving safety, quality and operational excellence into all that we do every day. Air travel has always been resilient, our portfolio of products and technology is well positioned, and we are confident we will emerge from the crisis and thrive again as a leader of our industry.”

The commercial airplane segment was Boeing’s Achilles’ heel. Revenue plunged 48% to $6.2 billion and airplane deliveries in the quarter (50) were down by two-thirds versus the same period a year ago. Boeing blamed the 33% operating loss on the lower delivery volume, nearly $800 million in unplanned production costs associated with suspension of 737 MAX production while regulators work on recertification, a $336 million charge related to recall repairs for the 737 Next Generation, lower 787 margins due to COVID-19, and $137 million of abnormal production costs from the temporary suspension of work in Washington in response to COVID-19.

Once the Federal Aviation Administration clears the MAX to fly, Boeing said it will resume production at low rates and gradually increase to 31 per month during 2021. Last year Boeing slowed production to 48 planes per month, which are still sitting on airfields because they could not be delivered to customers. The low demand environment for 737s added another $1 billion in estimated production costs, the company said.

Boeing said 787 production rates will be reduced from 14 per month to 10 per month this year, and gradually reduced to seven per month by 2022. The 777 Classic and 777X combined production rate will be reduced to three per month in 2021.

The 787 production rate was scheduled to drop to 12 per month later this year, prior to the COVID outbreak. Production of the 767 and 747, already at low rates, was unchanged.

The commercial aircraft segment has 5,000 airplanes on back order valued at $352 billion.

Over the weekend, Boeing broke off talks with Embraer to take over the Brazilian company’s aircraft manufacturing business for $4.2 billion. Embraer is taking the deal to arbitration.

Company officials have not decided whether to accept a huge loan from the federal government because it would involve giving up equity.