Boeing reduces net losses in Q1 2024 as backlog builds

Despite recording a lower than potential 2024 first-quarter net loss of $355 million (compared to $388 million last year) and an increased Q1 order backlog of $448bn, Boeing remains confident that improvements across its manufacturing, quality control and what CEO David Calhoun described as “maybe above all, culture improvement” will continue to safely fulfil demand for a commercial product that remains “incredibly strong”. The company’s operating cash flow rose substantially in the first quarter to $3,362 million (up from $318 million in Q1 2023), with a total revenue of $16.6bn (down 8% year-on-year); primarily reflecting lower commercial aircraft deliveries. The Commercial Airplanes business segment revenue of $4.7bn and operating margin of -24.6% also reflected grounding customer considerations. 83 aircraft were delivered in Q1 2024 compared to 130 in Q1 2023. Boeing ended the quarter with an order backlog of $448bn, representing some 5,600 aircraft, and up on last quarter’s total of $440bn. “While near-term delivery shortfalls hurt and will affect our performance during our first half of the year, the long-term benefits from a synchronized supply chain will be substantial” explained  Calhoun. The company remains confident it will still deliver between 400 and 450 737 aircraft over the course of 2024, despite FAA restrictions currently capping production at 38 units a month. Since moving inspection and rework teams to Wichita at the beginning of Match, Boeing has only allowed ‘fully inspected’ fuselages to be shipped to Renton, something Calhoun described as “dramatically reduced [Boeing’s] nonconformances entering the Renton factory’. However, with only 67 737 aircraft delivered during the first quarter as Boeing “deliberately slowed production below 38 per month to incorporate improvements to [its] quality and safety management systems,” it expects to move back to the full currently-permitted 38 in the second half of the year. After that, Calhoun perceives moving up another 12 units as “doable in the window we’re talking about”. The quarter ended with approximately 110 737 MAX 8s built prior to 2023, the vast majority for customers in China and India, down 30 aircraft from Q4 2023 and ‘in line’ with the company’s plans. By the end of the year, Calhoun described that Boeing expects to have “largely delivered” its 737 and 787 inventory, “effectively shutting down” its two large ‘shadow factories’. “The real pivot for us is the number of clean fuselages we get our of Spirit with the new inspection protocols,” explained Calhoun, who remained confident that this “slow and lumpy” period will be concluded within the next 60 days. Looking towards 2024, Boeing expects to generate low single-digit billions of free cash flow (building on its current $17bn of liquidity), which should improve throughout the year. Second quarter free cash flow is “expected to improve sequentially but be another sizeable use of cash,” explained Brian West, executive vice president and chief financial officer. As Boeing continues to monitor its liquidity levels whilst operating at lower production rates, it expects the achievement of achieving $10bn of free cash flow to be longer than originally planned; potentially arriving in the 2025-2026 window depending on production ramp-up, and something in which the acquisition of Spirit will “factor in significantly”.