Announcing a 4th Quarter loss per share of $2.33 and full year loss per share of $3.47 along with expectations that the cost of the 737 MAX crisis that has rocked the Chicago based company over the past ten months is now anticipated to grow to $18.6 billion surely make this one if not THE worst day in terms of financial reporting in the 104 year history of the Chicago based company. By the same token it may also be regarded as being a very good day for Boeing and the investment community as both results statement, approach and subsequent interviews show a welcome return of clarity, transparency and honesty. For this alone Boeing is deserving of applause.
However one chooses to paint them, with full year revenue falling 24% to $76.6 billion and the company reporting a $1,975 million loss from operations combined with negative operating cash outflow of $2,446 million compared to a previous year positive cash flow of $15,322, suffice to say that these are an appalling set of numbers the like of which investors will hope never to see again.
Do FY19 results mark the end of the Boeing 737 MAX crisis – no they certainly don’t and the prospect of further bad news ahead cannot be ruled out. Will the 737 MAX fly again? Boeing believes so and that the downside risk of this is 10%. I for one believe that to be right and that 737 MAX will certainly fly again but clearly, there is more work to do before regulators will allow that to occur. Indeed, this isn’t just a story of Boeing achieving recertification of the 737 MAX sometime this year but also one of rebuilding its long and valued reputation for safety. I am no doubt that Boeing will achieve what it has set out to do but no-one should imagine that achieving that goal will not have been very hard earned.
Despite the seemingly appalling set of results presented by Boeing senior management today dig down into the message that is writ large throughout these results and you find a company that is taking a very different approach to its investor messaging. Humbled as the company has certainly been throughout this crisis, Boeing is providing a new insight that has clarity, transparency and honesty in abundance. This a new Boeing and it is one that investors should welcome despite the many problems that still lie ahead.
Boeing’s annual statement has the hand of its new President and CEO Dave Calhoun writ large across every piece of detail and information provided. Open, honest, transparent and full of clarity – there is to my mind a very visible and marked change in the attitude and approach being taken – one that is not only extremely welcome but long overdue.
Simplification and openness have been called for many times in the past and Boeing has responded by focussing on what really matters, not only in respect of openness in its messaging but importantly, in how that messaging relates across the wider company into the priorities of safety, quality, integrity and delivering on its programs and promises made.
Boeing will not only survive this but in my view will once again prosper. Maybe that is still a long way away but I take the view that the company remains fundamentally strong.
Not much talked about today but despite the massive problems that have hit the narrow bodied 737 MAX, Boeing’s widebody commercial aircraft segment is still doing very well. So too is Boeing Defense and its other activities including Space.
True, there are still some very muddied 737 MAX waters to clear a way through and there are almost bound to be more shocks ahead, but cut through the mountain of problems that Boeing is now working hard and facing up to resolve and one can clearly see that Dave Calhoun has already taken Boeing by the scruff of the neck and demanded radical change. He has in my view been absolutely right to demand significant change and there is much work to do to restore Boeing back to where it needs to be. This includes airline customers that have suffered as 737 MAX planes remain grounded and passengers alike. But the good news is that there can surely be no accusations from this results statement of lack of clarity, transparency, openness and honesty.
Another example of change of approach and that marks a departure from the past is that the media and analyst community have been given two separate call opportunities with President and CEO Dave Calhoun and CFO Greg Smith. Mr. Calhoun has today also done his first TV interview as CEO of Boeing with CNBC Squawk Box.
In a previous CNBC interview Mr. Calhoun had confirmed that former CEO Dennis Muilenburg had offered to give up any 2019 bonus and that he will not take any further short or long-term bonus or equity until the 737 Max is flying again. He had said that Mr. Muilenburg “had done everything right” adding that he (Muilenburg) has set up the 737 MAX for return to service” and led a program to rewrite the MCAS related conditions that had led to the two tragic accidents. Mr. Calhoun had also said that “we can and will improve safety” and that [Boeing engineering] process needed to change.
In respect of the 737 MAX future Mr. Calhoun believes that getting the 737 MAX back in the air will be a “long process” adding that the regulators will decide when that occurs. The CNBC interview was a huge and important test for the new Boeing President and CEO and having listened to it in full I believe that he came through it very well.
CHW (London – 29th January 2020)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785