Cash Flow Is Tight And Faces Civil Criminal Investigation: Boeing Cuts Production And Layoffs.

[global war epidemic]

Boeing is negotiating with the investment bank a debt agreement of at least 10 billion US dollars. Last month, Boeing spent all its $13 billion 800 million credit line and was considering seeking government assistance. Boeing declined to disclose the size of its search for government aid, nor did it say which large-scale stimulus package the government was based on.

On April 29th, the US aircraft manufacturer Boeing announced its first quarter results in 2020. Affected by the 737 Max suspension and the new crown pneumonia epidemic, it lost 642 million US dollars in the first quarter, compared with a profit of 2 billion 149 million US dollars in the same period last year. The total delivery volume of the aircraft was 50, compared with 149 in the same period last year, a decrease of 66%, and the debt was 38 billion 900 million US dollars, which was higher than the 27 billion 300 million dollars at the end of the last quarter.

Moreover, the 737 Max crisis is still unsolved. Boeing is facing criminal and civil investigations because of production safety problems, which may make the aircraft manufacturer face greater legal liability than the industry and government officials had expected. And due to delay in resuming flight, it was claimed by many clients, which aggravated cash flow tensions.

To add insult to injury, the global aviation industry is entering the cold winter because of the epidemic. In this regard, Boeing chief executive David Calhoun (David Calhoun) announced that it will cut production and lay off at least 10% people, or 16 thousand people. Even so, agencies such as S & P believe Boeing's cash flow is still hard to sustain, and it is very likely that it needs government assistance.

Tight cash flow seeks billions of dollars in financing

Local time on April 29th, Boeing announced earnings report, the first quarter of this year's revenue was 16 billion 908 million U.S. dollars, compared with the same period last year's 22 billion 917 million U.S. dollars compared to 26%, a loss of 642 million dollars in the first quarter, compared with the same period last year profit of 2 billion 149 million U.S. dollars.

The total delivery volume of aircraft in the first quarter was 50, compared with 149 in the same period last year, a decrease of 66%. Among them, the delivery of 737 series of aircraft 5, down 94.38% compared to the same period; 787 series aircraft 29, down 19.44% compared to the same period. Boeing said this reflects the drop in deliveries caused by the 737 Max suspension and the impact of the new crown pneumonia epidemic.

At the end of the first quarter, the total amount of backlog was $439 billion, and cash and cash equivalents were $15 billion 39 million, compared to $6 billion 836 million last year, and the debt was $38 billion 900 million, up from 27 billion 300 million US dollars at the end of last quarter.

Calhoun said, "the new crown virus pandemic is affecting all aspects of our business, including airline customer needs, production continuity and supply chain stability. Our primary priority is the health and safety of the people and the community, and we will take tough but necessary actions to deal with this unprecedented public health crisis in order to adapt to the rapidly changing market.

It is understood that Boeing mainly dealt with difficulties in two ways. First, reduce the production of multi type passenger aircraft. Boeing said that the monthly output of the 787 passenger aircraft this year and next year will be reduced from 14 to 10 and will gradually be reduced to 7 by 2022. The combined output of 777/777X will be reduced to 3 per month in 2021. Second, Boeing will lay off staff. In an electronic memorandum sent to employees, Calhoun wrote that Boeing intends to lay off about 10% of its employees, including voluntary turnover, natural turnover and involuntary turnover under necessary circumstances.

At the beginning of this year, Boeing had about 160 thousand employees. Calhoun said Boeing could further lay off workers in the future by more than 15%, involving employees of commercial aircraft and services.

In addition, Boeing is reportedly negotiating a $10 billion bond agreement with the investment bank. Last month, Boeing spent all its $13 billion 800 million credit line and was considering seeking government assistance. Boeing declined to disclose the size of its search for government aid, nor did it say which large-scale stimulus package the government was based on.

However, S & P believes that Boeing's series of measures can not ease its tight cash flow. S & P said that the impact of the new crown pneumonia epidemic on air travel, Boeing's aircraft deliveries and after-sales service sales are declining, the company expects the cash flow will be greatly reduced. Therefore, S & P downgraded its credit rating from "BBB/A-2" to "BBB-/A-3", only one step away from the junk level.

Baird analyst Peter Arment wrote in a research paper: "Boeing may need to raise funds in 2020. Billions of dollars may be needed. It may be in the form of government loans or the sale of shares to the public. It is estimated that Boeing will spend about $3 billion a month in cash. "

Boeing did not give two quarter or annual performance guidelines in its earnings report. Despite all the difficulties, Calhoun said, "we are still confident of our long-term future."

737 the Max problem is outstanding.

In fact, before the outbreak of the new crown pneumonia, Boeing was in crisis. Indonesia lion airlines and Ethiopia airlines have crashed a Boeing 737 Max Series in half a year, killing 346 people. The two air crash caused the company's best-selling model, the 737 Max, to be grounded worldwide, and was shut down in January. Affected by the suspension of the 737 Max airliner, Boeing's net loss in the 2019 financial year was $636 million, ending the past 20 years of sustained profitability. The suspension of 737 Max also canceled Boeing's orders. Boeing said it cancelled 150 737 Max orders by customers in March, the most frequent cancellation of orders in decades.

Long time suspension and suspension of production have also resulted in claims for Boeing's sky high price. In April 22nd, Boeing was prosecuted by ALAFCO, a Kuwait air leasing company. The company alleged that Boeing could not deliver the aircraft or provide a revised delivery schedule, but retained advance payments, thereby violating the contract and demanding compensation of $336 million. However, Boeing did not comment on the matter. Prior to that, Boeing paid $428 million in cash compensation to Southwest Airlines as a 737 Max suspension from March 2019 to December 31, 2019.

While compensation is still being investigated. According to local time on April 28th, the US Department of justice and the Federal Aviation Administration ("FAA") are investigating the safety problems of the assembly line of the 737 aircraft. The inspection found that about half of the undelivered 737 Max aircraft's fuel tanks or other internal space contained waste, which could be the result of "quality control failure". As a result, Boeing is facing criminal and civil investigations, which may make the aircraft manufacturer face greater legal liability than the industry and government officials had expected.

According to people familiar with the matter, the investigation of the safety problems stems from the investigation of the design of the flight control system by the federal grand jury. The grand jury's investigation focused on some of the Boeing employees who told the US aviation administration officials about the risk of defects in the stall function, which later led to the two fatal crash of MAX aircraft in less than five months. As part of the expansion of the investigation, the two departments have been carefully investigating the major safety problems that may arise from the production failure of Boeing 737 Max. In addition, prosecutors of the judiciary and FAA investigators have been investigating the problems of Boeing factories, which have raised questions about whether the company has complied with mandatory production rules and safeguards.

Although Boeing did not comment on the survey, it stressed that after finding the waste of the undelivered Boeing 737 Max aircraft, internal investigations and corrective actions have been initiated. "Safety recovery 737 Max is our top priority." Boeing said.

In addition to the uncompleted investigation, the new crown virus pandemic also delayed the 737 Max flight schedule. Boeing said that despite the completion of a series of steps to enable the aircraft to return to the air, the outbreak of the new crown virus pneumonia is slowing down the progress of work. It is understood that Boeing needs to complete two software updates and remove some other obstacles, including re certification of flight before resuming commercial services.

Calhoun has insisted in recent months that Boeing engineers have made progress in solving the problem of 737 Max. "The new crown virus crisis has made this process more complicated, but we are making good progress and concentrating management control when risk arises. Of course, all of these must be subject to supervision by regulators. "

Since its suspension in March 2019, Boeing executives have repeatedly set target dates for the return of this aircraft, but they delayed the new problem when regulators found new problems to be solved. According to a person familiar with the progress of the investigation of the 737 Max aircraft, it is unlikely that the aircraft will get re flight approval before the end of this summer.

Aviation industry hits winter

Affected by the outbreak of the new crown pneumonia, the global aviation industry is almost at a standstill. Nearly 17000 (64%) of the world's 26000 airliners are in airports around the world, according to Cirium, a tracking service. According to statistics, the international passenger rate has dropped by nearly 80% compared with the same period last year. OAG, a data company, points out that the aviation industry has lost several years of growth, and that it will not be able to return to the level of 2020 until 2022 or 2023.

United Airlines issued a statement this week saying that because of the new crown virus pneumonia epidemic, the US government has issued various restrictive measures, so air travel demand is basically "zero". The company cut its flight in May by 90%, and warned that tourism demand in 2021 might remain low.

American Airlines also cut flights. The company will cut domestic flights by 70% to 75% in April, and will cut domestic flights by about 80% in May. In the past two months, American Airlines cut nearly 90% of international flights.

Olivier Ponti, vice president of data company ForwardKeys, pointed out that "with the spread of the epidemic, the situation may not return to the vibrant market situation at the beginning of the year."

The downturn in the aviation industry has put pressure on aircraft manufacturers. Many analysts believe that the current crisis will significantly reduce the delivery of aircraft. "No one is flying," said Ron Epstein, an analyst at Merrill Lynch and US bank. The longer the situation is, the higher the probability that airlines will not need to buy aircraft.

In a letter to shareholders, Calhoun also said, "the air transportation industry will take several years to recover to the level we saw a few months ago. We need to prepare for this. " Boeing will tighten his belt and ensure enough cash flow at a time of reduced revenue, he said.

Laurent Rouaud, co-founder of Avwork Partners, an aviation consultancy, estimates that the total aircraft deliveries this year may drop by 50% to 60%.

Epstein stressed, "if you are an airline now, you are most concerned about survival issues these days, and the last concern is buying a plane."

Calhoun believes that travel demand may take two to three years to restore to 2019 levels, which will be a huge change to the airline industry that has been repaid earlier this year.

?