April Becomes Worst Month Ever For Boeing—So Far

April is the cruelest month for Boeing. As of April 6, the aerospace and defense giant’s Puget Sound, Washington, sites were closed indefinitely for deep cleaning, and Boeing is trying to convince workers to come back after at least one local death from the COVID-19 pandemic was reported in late March. That same day, the company announced that work at its factory in Charleston, South Carolina, was suspended, too.

Meanwhile, Boeing is asking if there are some workers who do not want to come back at all.

On April 2, Boeing announced voluntary layoffs, and CEO and President David Calhoun acknowledged there likely will be changes coming to its product lines. But as monumental as those changes might be, they are not the biggest concern. Instead, the OEM first must figure out how to finance itself through the rest of the year.

The numbers were well-publicized in March as the U.S. Congress raced to pass its multitrillion-dollar stimulus and relief bill in response to the coronavirus pandemic, the CARES Act. Jaws dropped when Boeing sought a $60 billion aid package for itself and its suppliers as part of the legislative sausage-making.

But it is easy to see why it did so: Short-term commercial paper financing is frozen as a recession suddenly grips the U.S. and likely the world. Boeing Chief Financial Officer Greg Smith said access had dried up, at least temporarily. Calhoun tried to offer a brave face and said Boeing has access to $15 billion in cash and another $9.6 billion revolving credit line.

So why would Boeing seek government aid? The company ended 2019 with more than $27 billion in debt, doubling the red ink from the year before. By mid-March, before credit markets froze, it had newly opened and then fully drawn down a credit line totaling nearly $14 billion. Boeing Commercial Airplanes alone is burning through more than $4 billion a month to bankroll itself and some suppliers, starting with Spirit AeroSystems and General Electric Aviation, and it faces other big bills such as the $4.2 billion acquisition of most of Embraer’s commercial division and $4 billion in debt repayments. Analysts say Boeing could have to nearly double its debt again this year, especially if the grounded and halted 737 MAX is not recertified until late this year due to further delays caused by the COVID-19 pandemic.

Boeing wants either no strings attached on direct U.S. aid or government guarantees that back its loans from other financiers. Calhoun tried swatting down the idea of giving Washington outright equity in what is the country’s biggest exporter and second-biggest defense prime.

But that is likely easier said than done. “There aren’t many options to explore for Boeing without a guarantee from the government,” says Dhierin Bechai, an investment advisor with the Aerospace Forum whose Boeing analyses are widely followed on Seeking Alpha. The commercial aviation outlook has turned so bad so rapidly that newly minted airliners are being flown to storage. Even if commercial credit markets thaw enough for new debt to be taken on, Boeing could get hammered on the terms of that debt. “Doing the math, you can conclude rather quickly that Boeing can sustain a couple of months, but if this is going to last well into late 2020, then this is not sustainable,” Bechai said March 31.

But there probably will be less work in which to be involved. Any day now, Boeing is expected to announce new, lower production rates for 2020 and perhaps for the longer term.

Analysts are lowering their expectations for future production. Rob Stallard and Karl Oehlschlaeger of Vertical Research Partners on March 30 said they envision a revised requirement for 6,300 new airliners over the next five years, compared with their previous forecast of 8,300. By type, they foresee 1,540 fewer narrowbodies and 380 fewer widebodies, both roughly 25% cuts versus their prior demand model.

Analysts Sheila Kahyaoglu and Greg Konrad of Jefferies on March 31 forecast that aircraft deliveries will fall about 70% year-over-year in 2020, and they reduced their 2020-23 cumulative delivery estimate by around 60%, as airlines continue to defer deliveries with a significant portion of the widebody fleet parked.

The Jefferies duo assume Boeing will produce its 787 widebody at an average rate of four a month this year, stepping up to six in 2021 and 2022. They also forecast 777X deliveries at a rate of one per month, “which is quite pessimistic relative to [an] assumption of three a month.”

Similarly, Manfred Hader and Robert Thomson of Roland Berger say a recovery to overall 2019 production rates will take two years, albeit faster for Airbus and longer for Boeing, given the MAX situation.

The new normal for Boeing (and Airbus) is lower for longer when it comes to large commercial aircraft demand. With the MAX already putting it behind, Boeing may become eager for any American to boost his or her stake in the company, even Uncle Sam.