For nearly two decades, Boeing Co.’s mass-produced 737 jetliner has doubled as its cash machine.
The single-aisle plane, a favorite of budget carriers, bankrolled a decade of losses for the 787 Dreamliner and a more recent stock-buyback spree of $38 billion -- an amount equivalent to Ford Motor Co.’s market value. The newest version of the aircraft, the Max, was poised to become Boeing’s largest source of revenue and profit this year.
But since regulators grounded the best-selling 737 model indefinitely following two deadly crashes, the largest U.S. industrial company is in an unfamiliar position: conserving cash. That puts Boeing’s share repurchases at risk while threatening financial repercussions into 2020 and beyond if the 737 brand proves to be irreparably damaged.
Given the strain on its production resources, shoveling billions to investors “wouldn’t sit well,” said Nick Cunningham, managing partner with London-based Agency Partners. “The logical thing is to preserve cash because you might need it.”
A Boeing spokesman declined to comment on the cash plans, citing a quiet period ahead of the company’s first-quarter earnings release scheduled for Wednesday. The report will provide the first glimpse of the financial fallout from the March 10 crash of an Ethiopian Airlines jet, the second deadly Max accident in a five-month span. Combined, the two disasters killed 346 people.
$10 Billion Drag
After the earnings report, Boeing management’s discussion with analysts is likely to be “one of the most listened-to calls in industrial stock history,” Carter Copeland of Melius Research said in a note to clients last week. While the planemaker is widely expected to pull its 2019 guidance, little else is certain, he said. That has left investors “desperate for a bounding of outcomes” for this year and beyond.
All told, the Max could be a $10 billion drag on Boeing’s cash this year, predicted Barclays Plc analyst David Strauss in an April 15 report. Boeing has fallen 11 percent since last month’s tragedy, the biggest share drop on the Dow Jones Industrial Average. The decline wiped out $27 billion in market value.
Still, the prospect of an eventual rebound has helped limit losses for investors. Strauss sees Boeing gaining a $5 billion tailwind next year as deliveries and payments flow for the 300 or so aircraft he estimates the company will have parked.
“I think the most likely scenario is this airplane is flying again by the end of the third quarter, and Boeing goes hammer and tongs to get the deliveries out the door by the end of the year,” said George Ferguson, analyst with Bloomberg Intelligence. “If that’s the case and you’re an investor, the story is still intact.”