Boeing reported its results on Wednesday morning.
Expectations for a return to positive cash flow in 2021 may be unrealistic.
The company could still face difficulties in 2022 and beyond.
Investors hoping that 2020 would mark the end of a difficult period for Boeing Co. (NYSE: BA) may be disappointed as the company’s earnings report released on Wednesday argues that the current difficulties will continue into 2021 and possibly beyond.
Boeing’s third quarter report was highlighted by a loss of $466 million and a 29% decline in revenues. What makes Boeing’s loss of revenue even more worrying is that the company was easier to compare year-on-year. Specifically, the third quarter a year ago was severely affected by the grounding of the new Boeing Jet 737 MAX in response to two fatal crashes.
Would you like a full summary of Boeing’s earnings report on Wednesday? Take a look at this detailed summary.
Despite the two figures, Boeing’s report still performed better than expected, according to The Wall Street Journal. In fact, Boeing shares traded about 3% lower, which was roughly in line with the general market sell-off.
Boeing is in a position where it must reduce costs to cope with an environment where multiple air travel is under pressure. The company is closing its 787 Dreamliner plant in Seattle and will move all production to South Carolina, which offers lower costs. In addition, the company has confirmed that it will eliminate 11,000 new jobs by the end of 2021 and is cutting 30% of its office space.
However, it is unlikely that several cost reduction initiatives will prove sufficient to return to positive cash flow in 2021. According to the WSJ, Street analysts currently model that Boeing’s cash flow will improve from a negative $16.59 billion in 2020 to a positive $5.63 billion next year.
The argument for a positive cash flow next year is based, according to the WSJ, on the assumption that almost $87 billion worth of MAX aircraft still to be certified would be sold from inventory. But any unsold aircraft that are idly standing around the world may not be bought by customers in the near future.
As a result, Boeing’s investors were warned on Wednesday that the company may not report positive cash flow until 2022.
Problems after 2021?
Boeing investors could argue that buying the stock today offers longer-term value despite short-term uncertainty. Indeed, Boeing remains committed to increasing production of its MAX aircraft to 31 units per month by early 2022.
As the Journal notes, few aircraft and aircraft lessors are willing to take the risk of buying an aircraft – even two years after the start of the COVID 19 pandemic. Many of the MAX aircraft in stock will also have to undergo reconfiguration, which is not cheap to do, if they find a buyer at all.