Boeing suffers massive $11.9B loss in 2020, largest in its history
Hit both by the grounding of the 737 Max and the global pandemic that paralyzed its airline customers, Boeing suffered a massive net loss last year of $11.9 billion, the largest in its history.
In a message to employees Wednesday morning, chief executive Dave Calhoun called 2020 “a year of profound societal and global disruption, which significantly impacted our industry.”
The loss was amplified by a $6.5 billion write-off on the 777X program.
And the company reported $1.8 billion in additional accounting charges, including write-offs for the 737 Max, the KC-46 Air Force tanker and the recent settlement of fraud charges with the Department of Justice, financial filings released Wednesday show.
A big setback for 777X
The giant 777X jet flew for the first time almost exactly a year ago and is being flight tested. Its entry into service is delayed two years into 2023, and its market has evaporated for the immediate future as the global pandemic left long-haul international passenger traffic nearly gone.
The large international carriers that ordered it are all in trouble and no longer want to take delivery for some years.
In addition, the botched certification of the 737 Max ensures that regulators worldwide will take a prolonged and painstaking look at the 777X before they approve it to fly.
Boeing’s financial filing
Wednesday notes that an updated assessment that the 777X will take longer to certify is “based on ongoing communication with civil aviation authorities” around the world.
Still, while some analysts had anticipated a possible write-off on the 787 Dreamliner program as it struggles with quality defects in production — the fourth quarter showed no such charge — the huge write-off on 777X came as a surprise to the market.
Calhoun told employees the 777X charge reflects “an updated assessment of global certification requirements, our latest assessment of COVID-19 impacts on market demand, and discussions with customers with respect to aircraft delivery timing.”
“We remain confident in the 777X,” he added.
Boeing also took a $744 million charge on the deferred prosecution agreement reached with the Department of Justice to allow it to escape a conviction on criminal fraud during certification of the 737 Max.
This settlement consisted of a $244 million penalty for the criminal conduct plus $500 million to be set aside as additional compensation to the families of the 346 people who died in two Max crashes.
In the final quarter of the year, Boeing also added a charge of $468 million for abnormal production costs on the 737 Max stemming from the jet’s grounding. This is part of Boeing’s previous estimates of the cost of the Max grounding, not in addition.
And the troubled KC-46 tanker program added a writeoff of $275 million “primarily due to production inefficiencies including impacts of COVID-19 disruption,” Boeing said.
Finally, Boeing’s aftermarket service division — which for example provides spare parts and flight-operations support to airline customers — recorded a charge of $290 million driven by the impact to its markets of COVID-19.
Boeing confirmed in its filing that it will cut 787 production to just five jets per month and consolidate in South Carolina in March, closing its assembly line in Everett.
And management laid out the plan to ramp up the 737 Max.
It won’t be quick. “The 737 program is currently producing at a low rate and expects to gradually increase production to 31 per month in early 2022,” Boeing said.
Last week, rival planemaker Airbus announced plans to increase production of the A320neo jet family that competes with the Max — currently rolling out at a rate of 40 aircraft per month — to 43 jets per month in the third quarter and 45 jets per month by year end.
In the fourth quarter, with a total of $8.3 billion in writeoffs, Boeing had a net loss of $8.4 billion, or $14.65 per share, on revenue of $15.3 billion.
For the full year in 2020, the company showed a net loss of $11.94 billion, or $20.88 per share, on revenue of $58.2 billion.
During the quarter, Boeing’s cash on hand fell by $1.5 billion to $25.6 billion. And its debt swelled by $2.6 billion to $63.6 billion.
In consequence, Boeing’s net debt — its total debt minus its cash on hand — grew by $5 billion in the quarter to $38 billion.
A key metric that investors watch is Free Cash Flow (FCF), which is the cash generated by the business minus expenditure on plant and equipment. Boeing reported FCF at negative $4.3 billion for the fourth quarter and negative $20 billion for the full year.
In trading before the markets opened Wednesday, Boeing shares lost more than $6 on the news.
The Max is cleared to fly in Europe
On a day of historically bad financial news, Boeing got one solitary lift: as telegraphed earlier this week, the European Union Aviation Safety Agency (EASA) approved the return to service of the upgraded Boeing 737 Max.
“Following extensive analysis by EASA, we have determined that the 737 Max can safely return to service,” said EASA executive director Patrick Ky in a statement. He added that this assessment was carried out in full independence from Boeing and the Federal Aviation Administration (FAA).
EASA has demanded that Boeing make some additional design modifications within the next few years to address certain weaknesses in the Max’s inherited avionics systems — including adding a third measure of the plane’s Angle of Attack, which the FAA did not require.
“At our insistence, Boeing has also committed to work to enhance the aircraft still further in the medium term, in order to reach an even higher level of safety,” Ky said.