Since 2019, Boeing has experienced a staggering financial loss of $32 billion. It remains unclear when this trend might cease.

Since 2019, Boeing has experienced significant financial losses, amounting to $32 billion. It remains uncertain when this trend will come to an end.

Due to its distinct position in the market, the company is among the two major players responsible for manufacturing full-size passenger jets sought after by airlines. This essentially allows the company to continue selling, building, and delivering planes for a long while, notwithstanding known issues.

"Given the dynamics of their place in the industry and the industry itself, they have the luxury of time," according to Richard Aboulafia, a managing director at AeroDynamic Advisory, a consultancy focusing on the aerospace and defense industry. "It's an industry with the highest possible barriers to entry and very strong demand for its products. However, they've wasted a large chunk of this time."

Regardless of its numerous issues, Boeing possesses a backlog of orders for roughly 5,600 commercial jets worth approximately $529 billion. This is enough to cover several years of production. The issue is that Boeing has significantly reduced its output to address quality problems, incapable of producing enough planes annually to turn a profit.

"Can this situation last indefinitely? No, it can't," Ron Epstein, an aerospace analyst for Bank of America, shared. "Nevertheless, they have some breathing space. They won't be in trouble tomorrow."

Rising debt and plunging credit rating

Boeing management insists its sole focus is on resolving the documented safety and quality concerns, such as the missing bolts that resulted in an aluminum shell blowout in January. Nonetheless, the company has not provided a timeline for when they can expect a return to profitability.

Despite management's claims that the situation isn't as bad as it seems, there exists genuine concern over the impact on consumer confidence in its planes. This has triggered several regulatory investigations and severely disrupted airline operations. Even before the recent Alaska Airlines incident that played a part in a further drop in orders, and right after a record sales year in 2020, Boeing lagged far behind Airbus in orders for new jets and plane deliveries.

From the second quarter of 2019, following the second fatal crash of a 737 Max leading to its 20-month grounding, through the first quarter of 2021, comprising the Alaska Airlines incident where a door plug detached moments into a flight, Boeing reported anoperational loss of $31.9 billion. Net losses during this period totaled $27 billion.

No other company in the S&P has experienced such substantial losses over the last five years, according to FactSet, a company that tracks financial figures. Only two - Uber and Carnival Corp. - came remotely close to matching this.

Consequently, Boeing's debt level skyrocketed. It rose from $13 billion at the end of 2018 to $48 billion currently.

More losses could send the company's debt into the junk bond category for the first time. Moody's Ratings foresees that, even if the company enhances its financial performance, its cash flow would be insufficient to cover $4.3 billion of debt coming due in 2025 and $8 billion due in 2026. Boeing is expected to have to issue new debt to cover these deficits, according to Moody's.

When queried about its financial complications, Boeing urged investors to consider comments from CFO Brian West in a recent call with investors.

"We're committed to managing the balance sheet prudently with two primary objectives," he stated. "Number one, prioritize the investment grade rating; and number two, enable the factory and supply chain to stabilize for a stronger trajectory as we exit this year."

Unique advantages

Yet Boeing holds two significant advantages other players in the industry lack:

Initially, even if all of Boeing's clients moved to Airbus, Airbus would still face a backlog of over 8,000 commercial jet orders and a 2021 projected delivery total of roughly 800 planes. The lengthy wait for plane orders, which could be as long as a decade, ensures that airlines less likely to cancel orders with Boeing won't do so.

If a new manufacturer attempted to join the market, it would take years and several billions of dollars to design and certify a competing model capable of carrying passengers domestically and internationally.

Furthermore, airlines incur significant costs when operating both their current Boeing jets and a rival's version of the plane they already own.

Airline pilots are only licensed to operate the jet in which they are certified, meaning they cannot simply switch between competing models. Plus, airlines are obliged to maintain an expensive inventory of spare parts for their current aircraft. Switching to a competitor's version of a particular model is both costly and time consuming.

After Alaska Air bought out Virgin America in 2016, the company got rid of the Airbus planes it owned, thus evolving into an exclusively Boeing airline.

"We switched to a single fleet because we had two aircraft performing the same tasks in the Lower 48, and it was costing us $75 million to $100 million annually to maintain them," stated CEO Ben Minicucci to investors in January. "This included pilot training, reserves, and upkeep for both planes."

Despite these advantages, Boeing can't always rely on Airbus playing catch-up.

The choice of who will lead Boeing after Calhoun, who took charge in 2020 and plans to retire by the end of the year, is critical. Calhoun wants an internal candidate as his successor, but hasn't specified who that is. Meanwhile, some people believe hiring someone new would launch a much-needed change in the company's direction.

"It's a decade-long process to recover," Aboulafia remarked. "The first step to overcome current issues is a change in management. This is what the board should consider."

If Boeing doesn't regenerate, the huge advantage gained by Airbus due to Boeing's setbacks the previous five years could become permanent. The benefits of a duopoly won't be enough to prevent long-term decline for Boeing.

"We could compare Boeing's situation to that of (car manufacturer) GM, the once-powerful organization that's not as dominant anymore," added Epstein. "Can they shrink to a smaller portion of the market share if they don't change? Absolutely. It's already starting to happen."