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Breakingviews - Boeing’s next big hurdles are out of its control

Grounded Boeing 737 MAX aircraft are seen parked at Grant County International Airport in Moses Lake, Washington, U.S. November 17, 2020. REUTERS/Lindsey Wasson

NEW YORK (Reuters Breakingviews) - The future of Boeing is now in large part up to fate. The aircraft maker run by David Calhoun appeared to put its 737 MAX problems in the past on Wednesday, when the U.S. Federal Aviation Administration rescinded a grounding order on the plane involved in two fatal crashes. But a pandemically challenged travel industry awaits. Further delays of delivering the 737 MAX and other aircraft will exacerbate Boeing’s worrisome cash burn.

Shares of the $125 billion airplane maker jumped more than 3% on Wednesday on the news of the U.S. regulatory approval. In isolation, the FAA’s decision is a solid step for Boeing. The Chicago-based company will still need to upgrade some software and training, and more importantly work to get clients and travelers comfortable with boarding the planes. But it now has the playbook to, in theory, get more jets in the air.

The trouble is that travel is challenged for other reasons. The Covid-19 virus has kept passengers from flying generally, not just the MAX. The number of travelers that passed through Transportation Security Administration checkpoints on Tuesday was down two-thirds from the same day in 2019. That’s improved since the start of the pandemic, when flights were almost entirely grounded. But further lockdowns both domestically and internationally suggest the numbers will worsen again.

That creates a snowball effect for Boeing. Its clients, airline carriers, have an unsteady future and are facing cash crunches of their own. They’re already delaying deliveries of aircraft, and a full return of the travel business has become a “whether” as opposed to a “when” matter. The MAX has a backlog of some 3,365 jets, and it receives most of its cash for making them when the aircraft are delivered. Already almost 800 of its previous arrangements have been put off long enough for the company to acknowledge they’re at risk.

Boeing said on its last earnings call that it wouldn’t work through storage until 2022. That was at the end of October, before a surge in U.S. and European infections in recent weeks. The company already has $60 billion in debt and burned roughly $5 billion in cash in the last quarter. Its current liquidity position gives it only roughly a year and a half at last quarter’s burn rate. Boeing doesn’t have a whole lot of runway for issues beyond its control.

This item has been updated to correct the amount of time Boeing can continue its current rate of cash burn from “half a year” to “a year and a half” in the last paragraph.

Breakingviews

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