Embattled Boeing boss Dennis Muilenburg took a flight on the 737 Max jet this week. He hoped to show the aircraft is safe after software updates are installed. If only the manufacturer’s problems could be resolved so easily. On Thursday, Ethiopian investigators called for a full review of the anti-stall system, after finding pilots of a plane that crashed near Addis Ababa followed proper procedures.
The 737 Max remains grounded. Authorities around the world are investigating the safety of the plane. They also want to know how Boeing received approvals for an advanced jet that has crashed twice under questionable circumstances.
Yet for all the uncertainty, markets have made their own judgment on Boeing. Shares are off a tenth since the tragic crash involving Ethiopian Airlines — a market cap loss of $25bn. But in recent days the stock has come off its lows, signalling the company’s financial problems may be contained.
An aircraft manufacturer is a complex tangle of capex, operating costs, and working capital investment eventually balanced by cash deposits and full payments upon aircraft delivery. JPMorgan estimates that in the most extreme scenario, working capital balances could balloon by as much as $3bn per month because of a halt in deliveries and orders. But excluding the 737 Max, the group generates $10bn of free cash flow and has billions of borrowing capacity.
These cash costs will naturally reverse as deliveries restart. There may be future outlays for litigation and fines. But Boeing sells thousands of jets and has an enterprise value of more than $200bn. The real question, is whether confidence has been shaken so badly that marginal orders for jets will be lost to Airbus and others. A single flight by the company’s CEO shows his faith in the planes. Boeing still has a long way to go to restore the confidence that was previously placed in it.
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