Log in
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Dynamic quotes 

MarketScreener Homepage  >  Equities  >  Nyse  >  The Boeing Company    BA


SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector newsMarketScreener Strategies

As parked 787s multiply, Boeing cash drain worries grow

02/19/2013 | 07:46pm EST
File photo of ANA Boeing 787 Dreamliner after making an emergency landing at Takamatsu airport in western Japan

EVERETT, Wash./NORTH CHARLESTON, South Carolina (Reuters) - Paine Field Airport, next door to Boeing Co's (>> The Boeing Company) widebody plant north of Seattle, is getting crowded as 10 new 787 Dreamliners flank the runway, sparkling with contrasting and colorful liveries, including Poland's LOT, Britain's Thomson Airways and China Southern Airlines (>> China Southern Airlines Limited).

EVERETT, Wash./NORTH CHARLESTON, South Carolina (Reuters) - Paine Field Airport, next door to Boeing Co's (>> The Boeing Company) widebody plant north of Seattle, is getting crowded as 10 new 787 Dreamliners flank the runway, sparkling with contrasting and colorful liveries, including Poland's LOT, Britain's Thomson Airways and China Southern Airlines (>> China Southern Airlines Limited).

It is a similar story several thousand miles away, outside the company's North Charleston, South Carolina final assembly building, where space is taken up by four 787s destined for Air India <AIN.UL>.

A month after the global fleet of the carbon-composite jets were grounded as U.S. and Japanese regulators carry out investigations into overheating batteries, the parked airliners are a stark symbol of deepening problems this is causing Boeing.

At Paine Field in Everett, Boeing plans to move some of its other planes around to make room for new 787s coming off its two production lines, and says it has room to store all the 787s it is making.

But Boeing is finding it increasingly difficult to convince Wall Street that its balance sheet is not going to be strained by the crisis. Until the Dreamliner is cleared to fly again, which could be several months, Boeing will be starved of delivery payments but still has to keep producing and maintaining the 787s it is making.

The world's largest planemaker is being hit on a number of financial fronts, as well as suffering potential damage to its brand image. It is unable to deliver the five Dreamliners being produced per month, missing out an about $200 million in final cash payments from customers every month the 787 is grounded, while it has to pay out millions of dollars to clean, maintain and insure the parked planes. The delay may also force Boeing to postpone plans to double production by the end of this year.

Meanwhile, it is spending as much as $1 billion a month to keep the production line running, according to Russell Solomon, an analyst at Moody's Investors Service, as the 787 program is still in the early, cost-heavy stage.

On top of that, it will have to pay the extra costs of putting engineers to work on the battery problem and the expense of reworking the 100 or so Dreamliners that have so far rolled off the production lines once it resolves the problem. Wall Street initially pegged those costs at $350 million to $625 million, but as investigations drag on with no clear indication of a fix, analysts have held back on updating those figures. The longer the delay, the more complex and expensive the fix is likely to be.

"They've got all that carbon fiber sitting on the ramp, when they'd like to have the cash," said Carter Leake, an analyst at BB&T Capital Markets. "This is going to be a slow slog for a long time."


The company's $13.5 billion in cash and short-term investments provide a cushion, as does the $3.7 billion in free cash flow generated in the fourth quarter of 2012, but both will be eaten away each month the plane is grounded.

So far, analysts and one source familiar with Boeing's thinking do not expect the cash squeeze will prompt Boeing to borrow more, even at current low interest rates. The company itself said only that it has not adjusted its cash management strategy.

Boeing's cash flow could be cut by as much as $1.5 billion over six months if the 787s are still unable to fly, analysts said.

"The longer the plane is grounded, the greater the risk of the company's 2013 cash flow meaningfully declining," said Solomon at Moody's.

So far, Boeing's stock has held up at around $75, higher than for most of last year, and customers are expressing faith in the plane and its maker. Airlines are being notified of late deliveries, but none has canceled any orders.

The shares have fallen 3 percent since the 787 grounding in mid-January, compared to an 11 percent gain for Airbus parent EADS (>> EADS).

Boeing says it is still too early to quantify the financial impact of the grounding, and its 2013 financial forecasts excluded 787 costs.

Bob Crandall, former head of American Airlines and an industry figurehead, said Boeing will suffer, but most airlines would not be overly fazed by delivery delays, as they can lease replacement jets and bill Boeing for it, or factor those costs into discounts on future plane purchases.

"It's a shame, and will inconvenience airlines and passengers, and hurt Boeing financially. But progress and safety are the two games in play," he said.

"They (Boeing) will fix the problem and get the planes back in the air. It will cost them money, but nobody in the aviation community will fault them," he added. "Aviation progresses by constantly learning, and here the lesson is about the nature of lithium batteries."

Favorable market conditions are helping Boeing and its rival Airbus sell and produce record numbers of jets, worth about $88 billion last year, said Richard Aboulafia, a senior aerospace analyst at the Teal Group in Fairfax, Virginia.

High oil prices are prompting airlines to order new fuel-efficient planes, and low interest rates make the purchases easier to finance them and make the loans attractive to investors looking for yield. "You could not ask for those three variables to get any better for airplane output," he said. But, he added, it's unclear how long it will last.


The U.S. and Japanese investigations into burning lithium batteries are moving slowly, and there is no sign of a resolution.

The longer that goes on, the longer deliveries are pushed back. More importantly, it suggests that the work Boeing will have to do to rectify battery problems on the more than 100 Dreamliners it has already produced could be significant and will hamper its efforts to ramp up production.

Two weeks ago, Chief Executive Jim McNerney said Boeing was sticking with the ambitious plan - hatched long before the current battery problems came to light - to increase 787 production to seven a month by mid-year and 10 a month by the end of 2013.

Boeing spokesman Charles Bickers said that is still the plan, and it is too early to know what the financial impact of the 787 grounding will be.

The steep ramp-up is crucial to the profitability of the 787, as the lion's share of outlays happen early in a plane program. The quicker Boeing can refine the process and ramp up production, the quicker it will reach the target of 1,100 planes, the point where it calculates it will break even on the program. At planned production rates that is already a decade away.

"A slowdown would be crushing," said Leake at BB&T. "As long as the program accounting assumptions don't change, Boeing can keep booking the same margin in the current production block. But once production rates change or slow, their assumptions on both revenue and cost will have to change."

Revenue will likely go down as Boeing will have to offer aggrieved customers more concessions on future purchases to keep them happy, while it loses hundreds of millions of dollars in "progress" payments, which airlines pay as planes near completion. At the same time, costs will stay higher for longer than Boeing has been counting on.

Boeing's credit rating is not immediately under threat, but the trend is concerning analysts.

"If the grounding persists for many more months, planned increases in the monthly production rate look increasingly suspect - and expensive, possibly further eroding Boeing's otherwise strong credit profile," said Solomon at Moody's.

(Additional reporting by Alwyn Scott in Seattle; Editing by Edward Tobin and Richard Chang)

By Bill Rigby and Harriet McLeod

© Reuters 2013
Stocks mentioned in the article
ChangeLast1st jan.
AIRBUS SE -0.59% 88.83 Real-time Quote.-1.06%
ANA HOLDINGS INC. -1.38% 2209.5 End-of-day quote.-2.96%
CHINA SOUTHERN AIRLINES COMPANY LIMITED -1.58% 5.59 End-of-day quote.-6.21%
JAPAN AIRLINES CO., LTD. -0.37% 1894 End-of-day quote.-5.06%
SPACE CO.,LTD. -2.95% 789 End-of-day quote.0.00%
THE BOEING COMPANY -0.76% 205.84 Delayed Quote.-3.11%
TUI AG -17.19% 3.965 Delayed Quote.25.36%
01/23BOEING : U of Louisiana-Lafayette mini-satellite zipping around Earth
01/22Boeing says its fleet will be able to fly on 100% biofuel by 2030
01/22BOEING : Commits to Making Commercial Planes Flyable on 100% Sustainable Fuels b..
01/22BOEING : Sets 2030 as Goal on Sustainable Aviation Fuel Flights
01/22STREET COLOR : Boeing Commits to Delivering Commercial Plans Capable of Flying o..
01/22BOEING : Commits to Deliver Commercial Airplanes Ready to Fly on 100% Sustainabl..
01/22BOEING : 15 More Boeing KC-46 Tankers to Fuel the Air Force into the Future; New..
01/22OPTIONS : Straddle Prices for Stocks Expected to Report Quarterly Results Next W..
01/22Indonesia probing whether faulty system contributed to Sriwijaya Air crash
01/21Buttigieg Pledges to Support Biden's $2 Trillion Infrastructure Plan
More news
Financials (USD)
Sales 2020 58 165 M - -
Net income 2020 -4 266 M - -
Net Debt 2020 40 191 M - -
P/E ratio 2020 -27,6x
Yield 2020 0,49%
Capitalization 116 B 116 B -
EV / Sales 2020 2,69x
EV / Sales 2021 2,02x
Nbr of Employees 161 100
Free-Float 55,7%
Duration : Period :
The Boeing Company Technical Analysis Chart | MarketScreener
Full-screen chart
Technical analysis trends THE BOEING COMPANY
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus HOLD
Number of Analysts 24
Average target price 229,96 $
Last Close Price 205,84 $
Spread / Highest target 48,7%
Spread / Average Target 11,7%
Spread / Lowest Target -27,1%
EPS Revisions
Managers and Directors
David L. Calhoun President, Chief Executive Officer & Director
Lawrence W. Kellner Non-Executive Chairman
Jenette E. Ramos Senior Vice President-Supply Chain & Operations
Gregory D. Smith CFO & Executive VP-Enterprise Operations
Theodore Colbert Executive Vice President
Sector and Competitors
1st jan.Capitalization (M$)
AIRBUS SE-1.06%84 694
TEXTRON INC.1.72%11 382