Boeing Stock Plummets 7.55% Amid Cash Flow Deficit Due to Chinese Retaliation

Stock Price Down 32% This Year
New Passenger Plane Loses Parts Mid-Air
US Authorities Investigating Production Disruptions
Major Customer China Faces Aircraft Delivery Delays

Shares of U.S. aircraft manufacturer Boeing plunged after the Chief Financial Officer (CFO) forecasted delays in aircraft deliveries this year and a negative free cash flow (FCF).

Brian West, Boeing CFO, attended Wolfe Research's 'Global Transportation and Industrial Conference' on the 23rd (local time) and stated that due to production issues, free cash will be depleted this year, and aircraft deliveries are unlikely to improve in the second quarter.

[Image source=Reuters Yonhap News]

Initially, Boeing had projected in March that it could generate billions of dollars in cash. However, recent delays in aircraft deliveries have reversed this outlook.

Boeing also burned through about $4 billion in cash in the first quarter. West CFO forecasted that the second quarter could see cash burn similar to or slightly worse than the first quarter. Although FCF is expected to turn positive in the second half, the impact from the first half is expected to result in an annual deficit.

West CFO said, "We disappointed customers due to production supply chain issues," adding, "We are focusing on ongoing measures for customers and the industry supply chain to stabilize the production system, improve quality, and make it more predictable."

Following the news of deteriorating financial conditions, Boeing's stock price plummeted. On the day, Boeing closed at $172.21, down 7.55% from the previous trading day. Boeing's stock has fallen about 32% so far this year.

The reason for Boeing's worsening cash flow is that production has been disrupted due to investigations by U.S. authorities, and aircraft deliveries are delayed in China, one of its major customers. Most of the aircraft payment is received when the aircraft is delivered to the customer, but first-quarter aircraft deliveries fell to the lowest level since the COVID-19 pandemic.

Since January, when an incident occurred with the new 737 Max 9 passenger plane where a door plug component was pulled out mid-air, investigations by authorities have intensified, slowing production. Additionally, earlier this month, authorities began investigating the Boeing 787 Dreamliner model.

There was high anticipation as Boeing resumed aircraft deliveries to China for the first time in five years, but deliveries have been delayed as the Civil Aviation Administration of China (CAAC) started investigating the battery that powers the cockpit recording device on Boeing aircraft. As of the end of last year, Boeing held 85 units of the 737 Max 8 model in inventory to deliver to Chinese customers. Of these, 22 were delivered to China by the end of April, but deliveries have since been halted due to parts inspections and other reasons.

On the surface, it is a parts inspection, but recently, as the Chinese government announced sanctions against Boeing Defense, Space & Security (BDS) for selling weapons to Taiwan, some analysts interpret this as trade retaliation amid U.S.-China tensions.

Ben Chokanos, Aircraft Director at S&P Global Ratings, said, "We had already expected this year's performance to be low, but it is gradually worsening," adding, "We are focusing on recovering aircraft production to a healthy level next year." An anonymous portfolio manager holding Boeing stock expressed skepticism, saying, "How did the situation change so quickly?"