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By Julie Johnsson
Boeing Co. warned that deliveries of its cash-cow 737 jetliner will come in at the low end of its targeted range this year as a recently discovered supplier glitch crimps output.
Narrowbody handovers will be near the bottom of Boeing’s goal of shipping 400 to 450 of the popular 737 jets this year, Chief Financial Officer Brian West said at an investor conference on Thursday. Profit margins for the company’s commercial and defense units will be negative in the third quarter as it grapples with supply-chain disruptions, he said.
West’s comments at the Jefferies conference provided the first detailed look at how Boeing is dealing with another manufacturing defect potentially dating back years. The aviation titan disclosed last month that some holes in 737 bulkheads that help maintain cabin pressure were improperly drilled by supplier Spirit AeroSystems Holdings Inc.
Boeing is finding it takes longer to address the aft-pressure bulkhead issue than an earlier Spirit issue involving brackets used to attach the 737’s vertical fin to the main fuselage. Mechanics are inspecting and repairing hundreds of drilled holes per jet, West said.
“We have literal armies of people” working on this issue at Boeing and Spirit, West said. Spirit Chief Executive Officer Tom Gentile is expected to discuss the fallout to its operation later on Thursday.
While it masses resources to deal with the quality lapse, Boeing still expects to hit its free cash flow goals for this year and a longer-term target of generating $10 billion annually by mid-decade, West said.
Boeing shares declined 0.3% as off 11:18 a.m. in New York, while Spirit fell 3.3%. Through the close of trading Wednesday, US planemaker had gained 14% this year.
The latest quality lapse at Spirit, which builds the 737’s frame for Boeing, appears to date back to at least 2017 and could require inspections on more than 1,000 jets, Rob Spingarn of Melius Research wrote in a Sept. 5 report.
“The one program that Spirit had to get right now faces a potentially large, long-tail liability,” Spingarn said.
Boeing delivered just 22 of its 737 jets in August and expects to ship about 70 during the third quarter due to the pressure-bulkhead issue, West said. About three-quarters of the 220 undelivered single-aisle jets that were in storage at Boeing as of the end of June may be affected, and the repairs are complicated for completed aircraft, he added.
Even with the latest setback, Boeing remains on track to generate between $3 billion and $5 billion in free cash flow this year, West said. Still, cash flow will be slightly negative in the third quarter.
“We are squarely in middle off a recovery,” West said. “Recoveries tend to be lumpy not linear.”
Read more: Boeing, Supplier Spirit Fall After New 737 Max Defect Found
(Updates with analyst comment in eighth paragraph, scope of 737 issue)
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