Boeing Logo on Aircraft
(APRNEWS) - Boeing's plane deliveries to China have been delayed in recent weeks due to a Chinese regulatory review of the batteries powering the cockpit voice recorder, a source familiar with the matter told Reuters. The U.S. planemaker is working with Chinese customers on the timing of their deliveries as the Civil Aviation Administration of China (CAAC) completes its review of the 25-hour cockpit voice recorder batteries.
In a year-end 2023 filing, Boeing stated it had about 140 737 MAX 8 aircraft in inventory, including 85 aircraft for customers in China. Despite delivering 22 aircraft to China in 2024 through the end of April, Boeing has not delivered any new planes to Chinese customers in recent weeks pending the review, which had not been previously reported.
Boeing Chief Financial Officer Brian West informed investors last month that the company still expected to deliver most of these inventoried airplanes by year-end. However, it remains unclear how long the review may last or the extent to which it may impact Boeing's delivery targets.
Regulatory Challenges and Trade Tensions
Boeing mentioned that the Federal Aviation Administration (FAA) has certified the 25-hour CVR system, which stores more data than earlier versions of cockpit voice recorders and has been accepted by European regulators. "We defer to the FAA and the CAAC on this regulatory discussion," Boeing said. The FAA did not immediately comment.
Trade tensions between the U.S. and China persist. U.S. trade officials announced new higher tariffs on $18 billion in Chinese goods, which will take effect on Aug. 1. Boeing had resumed deliveries of its strongest-selling 737 MAX jet to a Chinese airline in January, ending an almost five-year import freeze and heralding the potential delivery of a backlog of finished MAXs to China. China was the first country to ground MAX jets after two accidents in 2018 and 2019 that killed 346 people.
Financial Implications for Boeing
Aircraft deliveries are closely watched by Wall Street as planemakers collect most of the money due when they hand over jets to customers. China's Commerce Ministry announced it will prohibit some U.S. firms, including Boeing Defense, Space & Security, from importing and exporting activities related to China and forbid them from making new investments in China. This has further complicated Boeing's delivery plans.
Boeing's cash flow situation has worsened, according to an S&P Global Ratings analyst, following the company's announcement that it would be cash-flow negative in 2024. Boeing currently holds a BBB- rating from S&P, one level above "junk" status, with a negative credit rating outlook. The rating agency changed that outlook in April from "stable" to "negative" due to the increased chance that it will take more time for cash flow to recover.
Outlook and Future Prospects
On Thursday, Boeing CFO Brian West stated that full-year cash flow would be negative for 2024, rather than modestly positive as forecast in March. "It’s certainly not good news. We were already expecting this year would be below our financial expectations for the rating and this is incrementally worse," said Ben Tsocanos, airlines director at S&P Global Ratings. "We’re focused on the company’s progress towards a healthy level of aircraft production going into next year."
For investors, especially those involved in investment management and wealth management, understanding the dynamics of Boeing's situation is critical. The interplay between regulatory reviews, trade tensions, and financial outlooks will significantly impact investment strategies and decisions related to investment banking. The role of financial institutions in providing necessary financial services and supporting investment planning will be vital as Boeing navigates these challenges.
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