Boeing (BA) is expected to report results on its fiscal first quarter on Wednesday, April 24, with a conference call scheduled for 10:30 am EDT. What to watch for:
SPIRIT ACQUISITION TALKS: On March 1, Boeing issued the following statement: “We have been working closely with Spirit AeroSystems (SPR) and its leadership to strengthen the quality of the commercial airplanes that we build together. We confirm that our collaboration has resulted in preliminary discussions about making Spirit AeroSystems a part of Boeing again. We believe that the reintegration of Boeing and Spirit AeroSystems’ manufacturing operations would further strengthen aviation safety, improve quality, and serve the interests of our customers, employees, and shareholders. Although there can be no assurance that we will be able to reach an agreement, we are committed to finding ways to continue to improve the safety and quality of the airplanes on which millions of people depend each and every day.”On March 20, Boeing CFO Brian West, when asked about the news that Boeing might reacquire Spirit AeroSystems while speaking at the Bank of America Global Industrials Conference, replied: “So you all would have seen our response to the discussion in the media. When there’s more information to share, we certainly will do that. I would say I’d point back to comments that Dave made in January around how Boeing more than 20 years ago probably got a little too far ahead of itself on the topic of outsourcing. And this is probably the example. We believe and Spirit believes that reintegrating these two companies is what’s best for safety and for quality for the aerospace industry. We have conviction on that. And without going into the synergies and efficiencies, it’s really about focus and running that business not as a business. It was a factory. Run it as a factory and stay focused on safety, on quality and stability. And that opportunity sits there. And I will also say that one thing that I’ve commented previously is how important our investment-grade rating is to us. And we work very closely with the rating agencies. And I will say that if a transaction were to occur, we would not use equity, right? We would fund it with a mix of cash and debt. But in terms of how that all plays out, can’t comment, but the discussions are happening.”On April 23, Bloomberg reported that Boeing’s plan to acquire Spirit AeroSystems has hit a “snag” and become a protracted process over pricing for factories that make components for Airbus (EADSY). Since Boeing confirmed its intention in early March to re-integrate Spirit, talks have only progressed slowly and don’t appear anywhere close to completion, people close to the matter told Bloomberg. Spirit makes parts not just for Boeing, but also for Airbus as well as manufacturers including Northrop Grumman (NOC), sources noted. Talks between the parties have not broken down, and the companies involved remain willing to reach an accord, the people added. Boeing declined to comment while Airbus said it’s in “early stage discussions on a variety of options, including acquiring from Spirit Aerosystems some of the activities that they carry out for Airbus.”
WHISTLEBLOWERS: On March 11, BBC reported that John Barnett, a former Boeing worker who raised concerns about the company’s production standards, has been found dead in the U.S. Barnett, who had worked at the plane maker for 32 years, had been giving evidence in the days prior to his death in a whistleblower lawsuit against Boeing, the author added. The Charleston County coroner confirmed the man’s passing, saying that he had died from a “self-inflicted” wound and that police were investigating.On April 9, the FAA said it was probing allegations made by engineer Sam Salehpour who said that sections of the fuselage of the Boeing 787 Dreamliner are improperly fastened together and could break apart mid-flight after thousands of trips, according to the New York Timesaccording to the New York Times Mark Walker and James Glanz. Salehpour, who worked on the plane and whose resume says he has worked at Boeing for more than a decade, detailed his allegations in interviews with the New York Times and in documents sent to the FAA. Boeing concedes those manufacturing changes were made, but a spokesman for the company said there was “no impact on durability or safe longevity of the airframe.” Boeing said it is “fully confident in the 787 Dreamliner,” adding, “These claims about the structural integrity of the 787 are inaccurate and do not represent the comprehensive work Boeing has done to ensure the quality and long-term safety of the aircraft.”On April 16, Boeing’s chief engineer for mechanical and structural engineer Steve Chrisholm told reporters that the carbon fiber composites used to build the jet successfully endured testing exceeding normal operating conditions, Claire Bushey of The Financial Times reported. “The average 787 accrues about 600 flights a year. We did 165,000 cycles… There were zero findings of fatigue in the composites,” Chrisholm said at a company event. This report came two days before a whistleblower is due to testify to the U.S. Congress about what he described as “catastrophic safety risks” during its manufacturing.
DOOR PLUG FALLOUT: In late January, the FAA announced it was halting Boeing MAX aircraft production, stating: “The January 5 Boeing 737-9 MAX incident must never happen again. Accordingly, the Federal Aviation Administration is announcing additional actions to ensure every aircraft is safe. The FAA today informed Boeing it will not grant any production expansion of the MAX, including the 737-9 MAX. This action comes on top of the FAA’s investigation and ramped up oversight of Boeing and its suppliers. The FAA today also approved a thorough inspection and maintenance process that must be performed on each of the grounded 171 Boeing 737-9 MAX aircraft. Upon successful completion, the aircraft will be eligible to return to service. The FAA approved this detailed set of inspection and maintenance instructions after a thorough review of data from 40 inspections of grounded planes. The FAA also convened a Corrective Action Review Board, or CARB. The CARB, made up of safety experts, scrutinized and approved the inspection and maintenance process. Following the completion of the enhanced maintenance and inspection process on each aircraft, the door plugs on the 737-9 MAX will be in compliance with the original design which is safe to operate. This aircraft will not operate until the process is complete and compliance with the original design is confirmed.”On February 6, The National Transportation Safety Board released its preliminary report on the door plug that blew out midair on the 737 Max 9 operated by Alaska Airlines (ALK) back on January 5. According to the document, four key bolts appeared to be missing. Photo evidence released Tuesday seems to show the bolts were missing from the door plug, which had been removed to fix rivets that were damaged in the production process.On February 28, Bloomberg reported that the Department of Justice would be probing aircraft maker Boeing due to a midair blowout in January on an Alaska Air flight that may lead to criminal prosecution. “The DOJ is examining whether the incident falls under the government’s 2021 deferred-prosecution agreement with the company over two previous fatal crashes of its 737 Max jetliner,” said the person, who asked not to be identified discussing a confidential matter.On March 12, the New York Times reported that the FAA’s audit of Boeing’s 737 MAX production process after a panel blew off on an Alaska Airlines jet in January failed 33 of 89 tests. In the wide-ranging investigation, Boeing failed a check that dealt with the component that blew off the jet, known as a door plug, the report said, citing an FAA presentation viewed by the publication. The plane maker passed 56 of the audits and had a total of 97 instances of alleged noncompliance, according to the presentation. The FAA also conducted 13 product audits for the part of the inquiry that focused on Spirit AeroSystems, and six of those audits resulted in passing grades, while seven resulted in failing ones, the presentation said.
MOODY’S REVIEWING BOEING’S CREDIT RATING: On March 26, Moody’s placed the Baa2 senior unsecured rating and Prime-2 short-term rating of Boeing on review for downgrade. The rating outlook was previously stable. “Placing the ratings on review for downgrade follows Moody’s belief that Boeing will be unable to deliver 737 narrow-body aircraft at the volumes required for it to materially expand its free cash flow and retire debt in a reasonable timeframe,” the ratings agency said in a statement. The aftereffects of the door plug ejection on Alaska Airlines flight 1282 on January 6, and investments in components and parts inventory in an attempt to reduce traveled work in the production of 737s will result in about $4.5B of negative free cash flow in Q1, it pointed out. Moody’s said Boeing’s cash will fall well below $10B come March 31.
NORTHCOAST DOWNGRADE: On April 17, Northcoast downgraded Boeing to Sell from Neutral with a $140 price target. The analyst expects Boeing’s quarterly earnings report in two weeks to prompt concerns about the company’s underlying fundamentals and ultimately shift investor focus to liquidity and acquisition concerns. Negative expectations are embedded in the lower share price, but investors may not be discounting structural issues, such as Boeing’s balance sheet stability or future cash liabilities, the analyst tells investors in a research note. Northcoast believes the 787 production challenges and the Federal Aviation Administration investigation uncertainties do not appear to be reflected in consensus estimates. The firm’s channel checks confirm unexpected changes were already made to the Dreamliner production schedule “that would normally indicate some type of problem not yet been communicated to The Street.” Its survey results point to a 787 program build rate of two jets per month, as opposed to Boeing’s claim of five.More By This Author:Here’s What Wall St. Experts Are Saying About Tesla Ahead Of Earnings
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