Could Boeing (BA) Go Bankrupt?

The last 5+ years haven’t been easy for Boeing (BA).

What started with a flawed 737 Max under CEO Dennis Muilenberg soon cascaded into a series of missteps that ate up his successor Dave Calhoun.

Kelly Ortberg took the helm in August only to face a massive 33,000 employee strike.

The company’s latest earnings report brought renewed interest, according to our TrackStar data. Yet, the number of searches by financial pros is significantly lower than we typically see for such an important announcement.

With major airlines cancelling orders, some investors are wondering whether Boeing can ever recover.

Here’s what we think.

Boeing’s Business

In 1916, Boeing flew the B&W, its first airplane. It marked the start of the company’s century of dominance in aerospace and defense.

The Boeing capsule that recently stranded astronauts aboard the ISS exemplifies the company’s current failures.

Boeing serves a diverse customer base that includes commercial airlines, defense departments, and space agencies with 170,000 employees across 65 countries.

You’d be hard pressed to find a major airport that doesn’t have one of its 737s in operation.

Boeing segments its business into the following areas:

• Commercial Airplanes (35% of total revenues) – Designs and manufactures commercial jets from the 737 to 787 Dreamliner
• Defense, Space & Security (36% of total revenues) – Produces military aircraft, satellites, missiles, and space exploration systems

Global Services (29% of total revenues) – Provides maintenance, modification, and upgrade services across commercial and military platforms

Boeing started the year with a catastrophic mid-air panel blowout on an Alaska Airlines flight in January triggered intensified federal scrutiny and exposed deep-rooted manufacturing issues.

This crisis, coupled with a five-week machinists’ strike involving 33,000 workers, contributed to a devastating $6.1 billion loss in the third quarter of 2024.

The company secured $10 billion in supplemental credit and plans to raise up to $25 billion in new capital to shore up its balance sheet. 

Boeing also reached a tentative agreement with striking workers that includes a 35% wage increase over four years, though this will add significant costs to an already strained balance sheet.

To streamline operations, Boeing announced plans to cut 10% of its workforce and end production of its 767 tanker jet. 

Ohh, and the company faces $5 billion in cost overruns primarily from delays in its 777x program.

Financials

Source: Stock Analysis

Boeing isn’t in any danger of going bankrupt immediately. But its $25 billion capital raise will lead to dilution and higher interest expenses.

In the last 12 months, Boeing burned through $5.2 billion in cash from operations while spending another $2.0 billion in CAPEX.

That’s a significant decline from the $6.0 billion in cash it generated from operations in 2023.

Now, there was a $6.9 billion build in inventory in the past nine months, which reduced cash flow. However, with customers cancelling orders and production delays, we’ll likely see more uneven cash flows in the next year.

With $53.2 billion in long-term debt already and another $1 billion in annual costs from the new labor contracts, things don’t look good for Boeing.

Valuation

Source: Seeking Alpha

Without profits and positive cash flow, we can only evaluate Boeing on enterprise value and price to sales.

In both cases, Boeing is cheap, but not by much.

Spirit AeroSystems (SPR), a key supplier of Boeing’s, is cheaper on both counts as it faces a similarly bleak future.

Embraer (ERJ), a Brazilian jet maker, trades at a discount to Boeing on both measures, likely due to its Brazilian origin. Yet, it should be noted that ERJ’s share price has done exceptionally well as Boeing’s flagged.

Growth

Source: Seeking Alpha

Growth is difficult to measure when you aren’t delivering aircraft. So, again, we aren’t left with much to gauge Boeing’s competence.

But, we can look at ERJ’s growth numbers to see that industry demand is strong for those who can meet the needs of the different airlines.

Profitability

Source: Seeking Alpha

Profitability isn’t there for Boeing, except its Global Services division where it ran a 17% operating margin in Q3.

However, that’s not enough to make up for the failures in the other two major business segments.

Our Opinion 2/10

We don’t see a good reason to own Boeing here.

The company faces numerous challenges that will take time and money to overcome.

In the meantime, shareholder dilution and higher interest expenses will make any future profits less attractive.

While Boeing will likely never disappear, it’s quite possible it could become insolvent if it can’t manage its costs.

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