Few companies have been affected by the COVID-19 pandemic more than those linked to the airline’s space. The slowdown has hit the airlines themselves, but another key victim has been aircraft manufacturers. For example, we have The Boeing Company (BA), a world-class manufacturer and seller of large and military aircraft. Management has just released financial results for the company’s second quarter of fiscal 2020, and what was clear from the data was how harsh the entity was. While the second quarter is likely to have been the worst for the global economy during this pandemic, the pain is likely to last several more quarters for Boeing before it returns to where it was before the crisis. Fortunately, the company’s financial situation is solid enough to survive for the foreseeable future. This could give investors interested in buying from the company the opportunity to buy before the market adjusts the entity’s market capitalization further to reflect its possible change.
A bad moment
No matter how you stack it, the last quarter for Boeing was tough. According to management, revenue reached $ 11.81 billion. This is 25% lower than the $ 15.75 billion that the company generated in the same quarter last year. Due to this weakness in the upper line, sales for the year to date are down 25.7%, having fallen from $ 38.67 billion last year to $ 28.72 billion today. This drop in sales occurred in the two main segments of the company. Defense, space and security was the only part of the business that performed well, with sales practically stable at $ 6.59 billion compared to $ 6.58 billion last year. Meanwhile, Global Services took a beating, with revenue declining 23% year-over-year. However, what really hurt was the business side of the company. A 78% drop in deliveries there reduced sales by 65%.
The deliveries really caused a lot of the pain for Boeing. During the quarter, the company’s commercial segment delivered only 20 aircraft. This compares to 90 in the same quarter last year. To date, deliveries have totaled 70 aircraft, up from 239 in 2019. What’s made the headlines in recent months has been 737 due to the two fatal crashes attributed to problems with the plane in a short period of time. During the quarter, the company delivered just 4 of these compared to 24 a year ago. But the pain did not end there. The 747 saw deliveries drop from 2 to 1, the 767 from 10 to 4, the 777 from 12 to 4, and the 787 experienced an impressive drop from 42 to just 7. In short, the problem was general due to the severe decrease in airline departures around the world, not just because of 737 fears.
As revenue fell, so did Boeing’s cash flow. According to management, the operating cash flow for the quarter was $ 5.28 billion. This is almost 10 times the $ 590 million outflow observed in the company’s second quarter of fiscal 2019. Free cash flow naturally did the same, falling from – $ 1.01 billion to – $ 5.63 billion. Surprisingly, while the cash flow snapped shut and that’s more important than earnings, earnings performed slightly better than what we saw a year earlier. Last year, the second quarter had a loss of $ 2.94 billion. This reduced some to a loss of $ 2.40 billion this year. However, to date, the loss is worse than in 2019, with a reading of $ 3.04 billion that dwarfs the loss of $ 793 million in 2018.
Another really important metric for investors is the order book. This illustrates how much track, more or less, Boeing has to work with over time. During the second quarter, for example, the order book ended at $ 408.65 billion. Although this is a significant amount of future revenue for the company, it represents a terrifying trend. In the first quarter of this year, this figure was $ 438.59 billion. That’s a decrease of $ 29.94 billion in just three months. Since 2019 ended, the order book decreased by $ 54.75 billion. With revenue of just $ 28.72 billion and reduced orders, the decline was largely due to contract cancellations and what’s called ASC 606 Adjustments. In the past six months, Boeing’s contract cancellations totaled $ 19.76 billion. . The ASC 606 adjustments, meanwhile, totaled $ 23.91 billion. These adjustments refer to contracted work that is removed from the order book for accounting purposes because it no longer fits the appropriate definition of the order book. This is common when the contracted work is not set in stone and, instead, is subject to customer-controlled contingencies that allow the work to be canceled or reduced.
* Taken from The Boeing Company
To cope with the current recession, the administration has decided to increase its liquidity. At the end of the last quarter, the business accumulated cash and cash equivalents worth $ 32.4 billion. This compares to $ 15.5 billion seen a quarter earlier. To do this, management had to borrow a significant amount of capital. Gross debt ended at $ 61.4 billion, compared to $ 38.9 billion in the first quarter. Meanwhile, net debt increased $ 5.6 billion from $ 23.4 billion to $ 29 billion. This change coincides very well with the negative free cash flow reported by Boeing during the second quarter.
* Taken from The Boeing Company
While Boeing does have a significant amount of cash on hand, it remains to be seen if the company will need more infusions. As the image above illustrates, the company is seeing some really positive developments in the industry. Departures, in particular, are increasing, while the number of aircraft on the sidelines has started to decrease. Due to long lead times between the time an order is placed and when it is completed, even a quick recovery could take several quarters to fully reflect on the company’s operations. In preparation for what the administration shows as bullish signs, the company has established a tentative plan to increase production of aircraft for its 737 at least. The details of this can be seen in the image below.
* Taken from The Boeing Company
To carry out
Right now, Boeing is itching from pain caused by the COVID-19 pandemic. That is to be expected. Still, it’s important to note the fact that the world is already showing signs of recovery (at least outside of the US). Chances are that a true recovery will take years to develop. Management understands that and has taken this opportunity to load cash for the sake of increasing their own flexibility. It will be interesting to see how long this cash will last in the business and whether the time of recovery will require a return of the business to the capital markets to get even more cash. Meanwhile, for investors who believe the future of the industry will shine brightly (and in no time), now might be a good time to consider the burden on the business.
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Divulge: I / we have no positions in any mentioned action, and we have no plans to initiate any positions within the next 72 hours. I wrote this article myself and express my own opinions. I receive no compensation for it (other than Seeking Alpha). I have no business relationship with any company whose shares are mentioned in this article.
