BA Boeing Co

By Doug Cameron 

Boeing Co. still hopes to secure regulatory approval this year for the return of its 737 MAX jetliner, but the company faces a cash squeeze as airlines stop payments and China holds off buying more planes because of a continuing trade spat with the U.S.

The world's largest aerospace company by sales said quarterly profit was cut in half, and it plans to trim production of its wide-body jets next year because of weakening demand.

The production cut and the impact of trade disputes and tariffs adds to the headwinds facing Boeing and Chief Executive Dennis Muilenburg as he prepares to face a grilling about the MAX crisis at two congressional hearings next week.

"These are challenging times," said Mr. Muilenburg on an investor call as he detailed progress in returning the MAX to service after two fatal crashes triggered a grounding that is now in its eighth month. He said there would be a lag in getting the MAX back in service, with most carriers not expecting flights to resume until early next year.

Mr. Muilenburg said he's looking forward to the hearings, appearances that carry high stakes for his own future and Boeing's efforts to regain public trust.

"I anticipate there will be tough questions, challenging questions -- a lot of scrutiny -- and, frankly, we support the scrutiny on the work that we're doing," he said in a call with analysts and reporters Wednesday.

Boeing shares dipped to session lows during the morning call as executives said the company would prioritize liquidity and its balance sheet over any resumption of the big stock buyback program it suspended earlier this year. Boeing had taken on more debt to counter the impact of the MAX and its planned purchase of the jetliner arm of Embraer SA.

The stock was up 0.3% in early afternoon trading Wednesday, having fallen sharply in recent sessions after the disclosure of internal messages between two employees discussing testing of the MAX in simulators.

Chief Financial Officer Greg Smith said Boeing is still receiving some advances and progress payments on delayed 737 MAX deliveries, though the level had changed "dramatically." A few customers -- notably Ryanair Holdings PLC and Brazil's Gol Linhas Aéreas Inteligentes SA -- have said they have halted payments.

The cost of the MAX grounding moved above $9 billion as Boeing increased the estimated cost of producing its backlog of more than 4,500 MAX jets by another $900 million. The company didn't raise its $5.6 billion estimate for customer compensation, though Mr. Smith said this could change, while the company has options to raise more cash.

It hasn't suffered any cancellations because of the MAX crisis, but slowing traffic growth and airline failures have dented orders at Boeing and rival Airbus SE this year.

Boeing still plans to maintain monthly output of the 737 range at 42 -- it cut this by 10 planes in April -- rising to 57 by the end of next year. Most suppliers continue to produce at the rate of 42, with more than 300 finished planes now estimated by analysts to be in storage at facilities in Texas and Washington state. It is expected to take more than a year to return all the planes to service, according to Mr. Muilenburg.

The MAX crisis, which this week claimed the job of its jetliner business chief Kevin McAllister, has made Boeing more reliant on its larger jets and defense sales, and the decision to reduce output of the 787 Dreamliner reflects the impact of trade tensions between the U.S. and China, the company's largest market.

"The lack of orders from China in the past couple of years has put pressure on the production rate," said Mr. Muilenburg. He remained hopeful plane sales could be part of a settlement between the U.S. and China, but declined to comment on a recent tweet from President Trump that flagged a potential order worth up to $20 billion.

Chinese airlines continue to take Boeing jets from aircraft lessors, but the company hasn't received a direct order from the country for two years.

Boeing earlier this year boosted monthly output of the Dreamliner to 14 from 12, but will reverse that in 2020 for two years.

The company also has pushed back the planned entry into service of its larger 777X jetliner into 2021 after problems with its General Electric Co. engines ruled out a planned first flight this year. It will make more of its existing 777 jet, but trim monthly output to three from 3.5.

Boeing reported a sharp drop in quarterly earnings, with profit falling to $1.17 billion from $2.36 billion. Per-share earnings dropped to $2.05 from $4.07.

Sales fell 21% to $20 billion in the quarter. Boeing handed over just 62 jetliners in the September quarter compared with 190 in the same period last year.

--Andrew Tangel contributed to this article.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

October 23, 2019 14:55 ET (18:55 GMT)

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