Boeing suffers huge $11.9 billion loss in 2020 — largest in its history

By Dominic Gates

The Seattle Times

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.

In the fourth quarter, with a total of $8.3 billion in write-offs, Boeing had a net loss of $8.4 billion, or $14.65 per share, on revenue of $15.3 billion.

The giant 777X jet flew for the first time almost 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 meant long-haul international passenger traffic has nearly disappeared.

The large international carriers that ordered it are all in trouble and no longer want to take delivery for 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 said the conclusion 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 the 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.”

Nonetheless, he said, “We remain confident in the 777X.”

Boeing also took a $744 million charge for the deferred prosecution agreement reached with the Department of Justice to allow it to avoid 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 the 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 write-off 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 five jets per month and consolidate in South Carolina in March, closing its assembly line in Everett.

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.

As a result, 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 expenditures on plant and equipment. Boeing reported FCF at negative $4.3 billion for the fourth quarter and negative $20 billion for the year.

In trading before the markets opened Wednesday, Boeing shares lost more than $6 on the news.

On a day of historically bad financial news, Boeing got one lift as 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,” EASA executive director Patrick Ky said in a statement. He added that this assessment was carried out independently from Boeing and the Federal Aviation Administration (FAA).

EASA has demanded that Boeing make 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.

The FAA and the aviation regulators of Canada and Brazil earlier cleared the MAX to fly passengers again.

These four are the major aviation-safety authorities from the countries that manufacture commercial jet planes in the West. Boeing awaits approval from other countries, particularly China, the world’s largest aviation market.

Boeing’s recovery from the current crisis rest largely on the successful return of the MAX around the world and a steady production increase. However, that won’t be quick.

In Wednesday’s filing, management laid out the MAX ramp-up plan.

“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 — 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.