The COVID-19 pandemic crushed many businesses last year. But few major corporations will be more eager to put 2020 in the rearview mirror than Boeing (NYSE:BA).
The combination of the 737 MAX grounding, the pandemic, and a variety of production miscues related to the 787 Dreamliner caused Boeing to burn $15.4 billion of cash in the first nine months of 2020. Its struggles continued last quarter, notwithstanding the recertification of the 737 MAX in November. Boeing is scheduled to report the gory details on Thursday morning.
Another weak quarter for deliveries
Earlier this month, Boeing reported that it delivered 59 commercial jets in the fourth quarter. On the one hand, this represents its highest quarterly delivery total of the year. On the other hand, it's a terrible result by any objective standard. In the fourth quarter of 2018 -- Boeing's last full quarter prior to the 737 MAX grounding -- the aerospace giant delivered 238 commercial jets. And despite the pandemic, Airbus managed to deliver 225 commercial jets last quarter.
Furthermore, the 737 family accounted for more than half of Boeing's fourth-quarter deliveries. Meanwhile, the jet maker delivered just 28 wide-bodies: nearly all freighters or military variants. By contrast, wide-bodies accounted for 70 of Boeing's 79 deliveries in Q4 2019.
The continuing weakness in the wide-body market is significant because wide-bodies generally sell for two to three times as much as narrow-body jets like the 737 MAX. Moreover, many airlines are using a combination of pre-delivery payments already on deposit with Boeing and compensation related to the 737 MAX grounding to pay for 737 MAX deliveries right now. As a result, those deliveries aren't necessarily generating any cash.
Expect another set of awful results
Due to the steep year-over-year plunge in wide-body deliveries, analysts expect Boeing's revenue to fall 16% from the prior-year period to $15.1 billion. The analyst consensus also calls for Boeing to ring up a sizable loss of $1.69 per share, as the company is struggling to cover its fixed costs at current production levels.
More importantly, Boeing almost certainly burned a huge amount of cash (again) in the fourth quarter. As noted above, the company's 737 MAX deliveries likely didn't generate much cash, while Boeing delivered very few wide-bodies. (The defense and space business had a fairly mediocre quarter, too.) Boeing burned between $4 billion and $6 billion in each of the first three quarters of 2020, and it probably burned cash at a similar rate last quarter.
In another signal that Boeing remains far from cash breakeven, the company issued $4.9 billion of additional debt in November, despite ending September with $27.1 billion of cash and investments on hand. Boeing also contributed nearly 17 million shares of stock -- worth about $3 billion at the time -- to its retirement plans last quarter, rather than contributing cash.
Clearly, 2021 will be a better year for Boeing than 2020. (It could hardly be worse.) On average, analysts expect revenue to recover to $78 billion. That would be up about 35% year over year, but still well below the record high of $101 billion reached in 2018. The analyst consensus calls for Boeing to eke out a modest profit of $1.25 per share. (That conceals a wide range of estimates, though, ranging from a loss of $4.28 per share to a solid profit of $7.97 per share.)
Yet the devil is in the details. During Boeing's Q3 earnings call in late October, CFO Greg Smith acknowledged that the company's prior plan to turn cash positive in 2021 might not be realistic. Boeing owed customers $6 billion of compensation related to the 737 MAX grounding as of a quarter ago. It also recently agreed to pay a $244 million criminal penalty and $500 million of additional compensation to the families of 737 MAX crash victims. These factors will weigh on cash flow this year.
Even when the aviation market stabilizes, the new normal may entail Boeing holding a smaller share of a smaller market and producing less cash flow than it did a few years ago. With such an uncertain future, investors should avoid Boeing stock until the company makes significant progress toward rebuilding its earnings power, fixing its balance sheet, and improving its long-term competitive positioning.