Boeing Reports First Annual Financial Loss In A Generation

Last year turned out to be the ugliest for Boeing’s finances in a generation, with the Chicago-based manufacturer of the 737 MAX and other aerospace and defense products reporting a net loss of $636 million.

The 2019 loss compared with earnings of $10.46 billion for 2018, the best on record for the 103-year-old company. Revenue for 2019 came in at almost $76.6 billion, down 24% from $101.13 billion in 2018, and far from the $109.5-111.5 billion the company once envisioned before the narrowbody’s crisis. In turn, shareholders will see a loss of $1.12 per share against a gain of $17.85 from 2018. 

“We recognize we have a lot of work to do,” said new Boeing CEO and president David Calhoun. “We are focused on returning the 737 MAX to service safely and restoring the long-standing trust that the Boeing brand represents with the flying public. We are committed to transparency and excellence in everything we do. Safety will underwrite every decision, every action and every step we take as we move forward. Fortunately, the strength of our overall Boeing portfolio of businesses provides the financial liquidity to follow a thorough and disciplined recovery process.”

The losses for 2019 were the first for Boeing since 1997. What is more, as part of its Jan. 29 earnings report the company disclosed $9.2 billion in new or pending charges due to the halted and grounded MAX, bringing the total cost of the embattled program to more than $18 billion so far.

By category, Boeing added $2.6 billion to the amount expected to go toward customer compensation, bringing it to $8.2 billion. Meanwhile, $2.6 billion was added to the 3,100-aircraft multi-year 737 program accounting basis, doubling that cost to $5.2 billion. Finally, in a new twist, Boeing unveiled a $4 billion charge for “abnormal production costs” that will be expensed as incurred, primarily in 2020.

Of the latter, some amount is expected to go toward supporting suppliers on an individual basis. “We’re engaged at all tiers of the supply chain and have been for quite some time,” Smith said of the more than 600 suppliers involved. “It’s in all of our best interests to make sure they are healthy—and frankly, coming out of this process healthier than they did coming in.”

Boeing provided no financial guidance for 2020, and since forecasts for 2019 had been scrapped last spring after the MAX issue emerged, analysts had little consensus to compare against and they were not surprised by the red ink. In notes to investor clients, many said they viewed the earnings report as a “kitchen sinking” where Calhoun and Smith were looking to disclose as much bad news now as possible.

Still, some analysts said their eyebrows were raised by a few details. For starters, Boeing reported cash outflow of $2.7 billion for the fourth quarter of 2019, far below the $1 billion cash gain many expected. While it was not detailed how the money was spent, CFO Greg Smith noted that Boeing paid $1.4 billion in compensation to MAX customers in 2019.

Among other sour notes was confirmation that the 787 production rate will drop to 10 new aircraft a month in early 2021. Also, Boeing Defense and Security’s revenue came in 13% lower than the previous year’s, and the company said the division’s fourth-quarter operating margin decreased to 0.5% in part due to a $410 million pre-tax Commercial Crew charge primarily to provision for an additional uncrewed mission for the NASA Commercial Crew program.

NASA is evaluating the data received during the failed December 2019 mission to determine if another uncrewed mission is required, Boeing stressed, indicating the charge may not be incurred in the end.

While the earnings report provided a level of certainty for investors to lean on—a sentiment that seemed to drive the company’s stock up more than 2% in regular trading after the report—several analysts expressed continued caution, at best.

“We think investors will continue to be worried that we have yet to really set a new baseline for earnings and cashflow, with the cash from the 2019 MAX charges yet to flow through, and then there is another $4 billion of estimated cost still to go,” said Vertical Research Partners. “Oh, and the 787 rate is coming down, and the Defense division has another problem program.”

Finally, CFO Smith confirmed Boeing is finalizing taking out a new term loan worth at least $12 billion, although it could be more when the debt financing closes in February. The company ended 2019 with $10 billion in cash and securities, but also $27 billion in total debt.