Abhijeet Ganapavaram and Allison Lampert
(Reuters) – Boeing on Wednesday reported its first quarterly revenue decline in seven quarters, but the U.S. planemaker beat analysts’ expectations, which were slashed after a door plug blew out in January, prompting the company to slow production of its best-selling planes. .
Following the report, Boeing (NYSE:) CEO Dave Calhoun told CNBC that a deal to acquire its key supplier Spirit AeroSystems (NYSE:) is more than likely in the second quarter.
Issues that need to be resolved include price and negotiations with Spirit’s customer Airbus, Boeing’s main competitor. But Calhoun told analysts that Boeing may move forward without complete clarity from Airbus.
“We’re not being held hostage,” said Calhoun, who is leaving at the end of the year.
Quarterly revenue was $16.57 billion, down from $17.92 billion a year earlier but beating expectations of $16.23 billion. Shares of Boeing and Spirit Aero fell about 3% in early afternoon trading.
Boeing Chief Financial Officer Brian West told analysts that cash burn in the second quarter will be “significant,” although he expects the use of free cash to improve from the $3.93 billion spent in the first quarter. That’s less than the $4.49 billion that analysts had expected after the Jan. 5 crash of a nearly new 737 MAX 9.
“Well, it could have been worse. While losses and cash outflows are not as bad as feared, the company still clearly faces some significant challenges,” Vertical Research Partners analyst Robert Stallard said in a note.
In the afternoon, Moody’s (NYSE:) downgraded Boeing’s credit rating to the lower end of investment grade. The agency expects headwinds surrounding the company’s commercial aircraft to continue at least until 2026, when Boeing faces $8 billion in debt.
remove advertising
.
The Alaska Airlines crash resulted in numerous lawsuits. According to the company’s report, Boeing’s profit was $443 million after insurance claims.
Following the accident, the US Federal Aviation Administration (FAA) limited production of the 737 MAX narrowbody jet and gave Boeing 90 days from February 28 to develop a comprehensive plan to improve quality control.
Reuters reported this month that production of Boeing’s cash cow 737 MAX had fallen sharply as U.S. regulators tightened factory inspections. Calhoun said production will remain sporadic in the second quarter as the company develops a plan to improve monitoring of its production system. He said production rates will not increase until the system is under control.
“So 90 days is not like, ‘Wave a magic flag and everything will be great,’ and you guys can go from 38 to 40 inches per month,” Calhoun said. Boeing has brought in independent quality experts who Calhoun expects will remain there for several years.
While Boeing has not named a successor, Calhoun told CNBC he believes commercial aircraft boss Stephanie Pope has the potential to lead the company.
Analysts warn that the slow pace of deliveries could delay Boeing’s financial and production goals. Boeing’s chief financial officer said last month that the company needs more time to reach its 2022 goal of annual cash flow of about $10 billion by 2025 or 2026.
The goal is seen as key as Boeing works to speed up its recovery from the previous crisis following the crashes of two MAX planes in 2018 and 2019.
remove advertising
.
Boeing delivered 13 twin-aisle 787 Dreamliners during the quarter. Production is expected to return to five per month later this year. Calhoun attributed the slowdown to supply chain issues involving airline seats and parts used in cooling systems.
However, with production limited by Boeing and Airbus, demand remains strong, although the European aircraft maker has strengthened its leadership in the narrowbody market.
Calhoun said Boeing will “largely deliver” its 737 and 787 inventory by the end of the year, bringing in much-needed cash. He added that its defense business, which has been losing money, “will approach more historical performance levels.”
Operating profit at Boeing’s defense business rose to 2.2% in the quarter from negative 3.2% a year ago, although the company still lost $222 million on some fixed-price development programs.
Boeing delivered 67 737s in the quarter ended in March, down 41% from last year. Aircraft manufacturers receive most of the money when they deliver the aircraft.
Combined with the compensation Boeing had to pay airlines for the temporary grounding of MAX 9 planes, profitability in the commercial aircraft business fell to negative 24.6% from negative 9.2%.
The overall adjusted loss per share narrowed to $1.13, beating expectations for a loss per share of $1.76, according to LSEG.