Boeing (BA +0.07%) struggled mightily in 2020. The COVID-19 pandemic, the 737 MAX grounding, and 787 Dreamliner production flaws combined to crush its commercial aviation business, which delivered just 157 jets last year, down from 806 in 2018.
Over the past few months, Boeing has finally started to see some light at the end of the tunnel. The Food and Drug Administration and its peers around the world have approved several COVID-19 vaccines, paving the way for mass vaccination campaigns. Meanwhile, regulators in most major markets have recertified the 737 MAX. Nevertheless, Boeing's fourth-quarter earnings report highlighted just how much work remains ahead of the aerospace giant. That drove Boeing stock down 4% on Wednesday.
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Boeing rings up a huge loss
Last quarter, Boeing's revenue fell 15% year over year to $15.3 billion, edging ahead of the analyst consensus of $15.1 billion. However, the company posted a massive core operating loss of $8.4 billion and a core loss per share of $15.25. Analysts had expected a loss per share of approximately $1.80.
A $6.5 billion pre-tax charge related to the 777X program drove the bulk of this loss. Boeing now expects to begin 777X deliveries in late 2023. Initially, it had planned to deliver the first one in mid-2020, and the most recent plan had called for deliveries to begin in 2022. Unsurprisingly, management expects tougher certification requirements in light of the 737 MAX debacle. Boeing also recognizes that its customers have no appetite to take delivery of massive jets like the 777X in the near term.
Due to the latter issue, Boeing has trimmed its 777X production plans for the foreseeable future and reduced the initial accounting quantity over which it spreads costs related to the program. That triggered the $6.5 billion earnings charge.
Boeing also incurred a $275 million pre-tax charge on its KC-46A military tanker program, which it attributed to pandemic-related disruptions. The services division took $290 million of pre-tax asset impairments. Finally, Boeing recorded a $744 million pre-tax charge related to settling the Department of Justice's probe into the 737 MAX program.
Image source: Boeing.
These pre-tax charges accounted for most of Boeing's $8.4 billion core operating loss. That's small comfort, though, given how frequently Boeing has recorded earnings charges in recent years.
Cash burn continues
Boeing burned through $4.3 billion of cash last quarter. That's a terrible result by any normal standard, although it actually represented the company's smallest quarterly cash outflow of the year. This cash burn caused Boeing's cash and investments balance to fall by $1.5 billion sequentially to $25.6 billion, while its debt increased $2.6 billion sequentially to $63.6 billion.
Looking ahead, Boeing expects cash flow to improve significantly in 2021 (along with revenue and earnings). That said, the company projects "lower use of cash" this year, not a return to positive cash flow.
Indeed, while Boeing will book higher revenue as it delivers 737 MAX and 787 jets from its inventory to customers, those deliveries won't generate as much cash as they normally would. Boeing still owes customers over $5.5 billion of compensation related to the 737 MAX grounding. Customers are also applying some of the $50.5 billion of advances and progress payments that Boeing holds to pay for aircraft. Those headwinds will likely abate by next year, allowing Boeing to generate positive cash flow in 2022.
No quick return to normal
Despite this projected return to positive cash flow next year, investors shouldn't expect Boeing to be firing on all cylinders again anytime soon. The aircraft manufacturer's backlog plunged by $100 billion in 2020, ending the year at $363 billion, which is the lowest level in nearly a decade. Moreover, that total still includes many orders at risk of being canceled or deferred many years into the future.
As a result, Boeing plans to hold production for its two main aircraft programs -- the 737 MAX and 787 Dreamliner -- far below the record levels seen a couple of years ago for the foreseeable future. Meanwhile, the 777X program won't turn cash positive until around 2025.
In short, Boeing enters 2021 with a heavy debt load, facing another year of negative cash flow, and with no clear path back to generating as much cash as it did a few years ago. While Boeing stock has fallen 40% over the past year, there are still better options for investing your hard-earned money.
