Boeing Dreamliner defaults spur new cash risk as Max Woes fades


(Bloomberg) – Boeing Co. is facing another cash drain from structural flaws on its 787 Dreamliner jets, which could slow the company’s recovery from the coronavirus pandemic and the grounding of the 737 Max, a said a Bernstein analyst.

The Dreamliner woes will sap $7.5 billion from Boeing’s free cash flow for 2020 and 2021, Bernstein’s Douglas Harned said Monday as he reduced the planner to the equivalent of “selling.” Boeing delivered just one 787 plane in December after none in November, Harned said, suggesting delays in repairs to undelivered planes.

“The problem we see is that the 787 situation is getting worse and we are not yet able to completely limit the negative impact,” Harned said in a report. He lowered his price target by 10% to $199.

The soaring financial impact signals further turmoil for Boeing as it attempts to rebound from the most brutal downturn in aviation history. While the Dreamliner’s flaws aren’t an immediate safety threat, Boeing chief financial officer Greg Smith acknowledged last month that inspections were taking longer than expected. This contrasted with the company’s optimistic message in October, when it forecast a strong fourth quarter for 787 deliveries.

Boeing fell 5.1% to $203.15 at 2:55 p.m. in New York after slipping as much as 5.4% for the biggest intraday decline in nearly three months. Boeing was the worst performer in the Dow Jones Industrial Average, even as rising Covid-19 cases and Tuesday’s runoff election for two Senate seats in Georgia sent U.S. stocks falling broadly.

Stored Jets

The Chicago-based company declined to comment beyond Smith’s warning last month about weak shipments. The chief financial officer said at the time that Boeing planned to hand over undelivered Dreamliners throughout 2021.

About 75 completed Dreamliners are in storage, Harned said, far more than the 10 to 15 undelivered planes that were typical when the program was a cash cow for Boeing. Harned predicted that the number of 787 aircraft in storage would continue to grow in the first quarter.

Boeing’s inventory already stood at a record $75.2 billion at the end of September, bloated by hundreds of undelivered Max jets. Transfers of the single-aisle workhorse are now underway, since US regulators lifted the grounding of the Max in November. The longest flight ban in US history was prompted by two fatal crashes that killed 346 people.

In the eyes of investors, the return of the Max and the rapid introduction of Covid-19 vaccines overshadowed the Dreamliner’s woes in late 2020, and stocks rebounded strongly in the fourth quarter. Still, UBS Group AG has warned that Boeing could be forced to post a long-term loss with profits later this month as it slows Dreamliner production and consolidates production in South Carolina.

‘Teardown’ Interiors

Boeing intends to repair 787 planes for months at its plant in Everett, Washington, after halting production of the model there in March. The inspections require “opening up the plane by stripping down the interior, floor, ceiling, etc,” Harned wrote.

Where the two fuselage segments are joined, engineering specifications allow for slight variations, or wrinkles, in the interior surface that are about the width of a human hair.

Boeing and US regulators are determining how to proceed for Dreamliners already in service. Potential answers include requiring the company to fix structural issues or demonstrating that its previous engineering tolerances were too tight, Harned said.

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