To say that Boeing (NYSE:BA) has experienced its fair share of struggles of late is a massive understatement. Following the two tragic 737 Max crashes that killed 346 passengers in Indonesia and Ethiopia in October 2018 and March 2019, respectively, Boeing grounded its entire fleet of Max jetliners. At the time of this article, the Boeing 737 Max still awaits regulatory approval to be recommissioned for commercial use.
While Boeing had hoped to get the 737 Max off the ground at the start of 2020, continuing regulatory delays mean the jetliner probably won't be transporting passengers again until summer or fall of this year. The Boeing 737 Max plane was the company's bread and butter, and grounding the fleet has cost the company near $20 billion in total.
Boeing released its Q4 earnings at the end of January, confirming investor's fears that growing debt and losses have left the company hemorrhaging financially. Even though Boeing kept paying out dividends in 2019, the indefinite grounding of the 737 Max could easily interrupt cash flow into the new year. The salt in the wound is that the 737 Max's ongoing regulatory woes have forced Boeing to bring production of new 737s to a standstill, which will only magnify the expense of grounding the planes.
With the considerable decline of Boeing stock over the past year, some investors have wondered whether to buy in now to potentially realize big returns once the 737 Max is back in operation. But is Boeing's financial future a foregone conclusion?
Let's take a closer look.
Boeing's Q4 earnings took a major hit
Over the past year in the midst of the 737 Max crisis, Boeing stock has dropped by roughly 12 percent. Revenues failed to align with analysts' expectations in the last few months of 2019.
Q4 earnings were $17.91 billion, which represented a 37% year-over-year decline from Q4 of 2018 when Boeing reported earnings of $28.34 billion. In the commercial airplanes sector, the Q4 operating margin plunged by 38.1%, largely due to the halt of 737 Max production.
It didn't help matters that Boeing had to set aside just under $3 billion in Q4 to cover customer concessions. Looking at 2019 as a whole, Boeing reported earnings of $76.56 billion -- a staggering 24% downturn from revenues the year before.
The company is saddled with debt
Investors were fairly pleased when in 2019, despite the 737 Max crisis, dividend payouts continued as per usual. In fact, Boeing paid investors roughly $4.3 billion in dividends over the course of the year, representing a rise of approximately 17% in dividend disbursements from the year before.
These figures may look hopeful at first glance, but don't let them fool you. In 2019, Boeing incurred a further $13 billion of debt with an overall debt total surpassing $27 billion at the end of December. This debt accumulation was the only reason Boeing was able to keep investors at bay and continue manufacturing the 737 Max until its recent suspension of production.
Boeing reported that it had a mere $10 billion in cash and securities by the close of 2019, with an operating cash flow of about $2 billion. Since the start of 2020, Boeing has secured over $12 billion in loans to offset its cash troubles, with the potential for a further increase as needed.
Summing it up
In Boeing's Q4 earnings conference call, new CEO and President David L. Calhoun stated, "It's a very challenging moment for Boeing. We got a lot of work to do. But I'm confident that we'll manage this situation in the right way, and I'm optimistic about the company's future, both in terms of the markets that we serve and maybe, more importantly, the engineering and technical capabilities we bring."
Certainly, the removal of disgraced former CEO Dennis Muilenburg and the onboarding of Calhoun is a hopeful sign for the future of the company. Unfortunately, it's unlikely that the company's top and bottom line will be positively affected anytime soon.
Boeing's recovery won't happen overnight, and its debt problems and weak cash flow remain a major concern.
Right now, Boeing stock is not a buy.