Boeing is facing significant financial implications as the launch of its much-anticipated 777X model has been delayed until 2027, according to a Bloomberg report. Analysts predict that this delay could result in a substantial non-cash accounting charge ranging from $2.5 billion to $4 billion, although Boeing has yet to disclose any specific figures regarding the financial impact.
The 777X, which was initially scheduled to enter service in 2020, is critical to Boeing’s strategy to reclaim market share from its chief competitor, Airbus, particularly in the long-haul sector where profitability is high. Deutsche Lufthansa AG, the launch customer for the new aircraft, is reportedly adapting its plans to accommodate the new schedule. Analysts and industry insiders are expressing concerns about the financial damage caused by this setback, especially given Boeing’s current position in a “reach-forward loss situation,” which implies that the company will not be able to recover development costs through initial aircraft sales.
Boeing’s CEO Kelly Ortberg acknowledged last month that there remains “a mountain of work” necessary for the certification of the 777X model, though he emphasized that there have been no new technical difficulties encountered. He stated that even minor delays can have significant financial repercussions, especially in light of the ongoing cost overruns associated with the development of the aircraft, which have reportedly reached $11 billion.
Retail sentiment surrounding Boeing stock remains bullish, despite the challenges. An analysis of Stocktwits data shows a high volume of retail messaging about the stock, indicating that investor confidence has not fully wavered in the face of setbacks.
Additionally, Boeing has a significant backlog with its 787 and MAX models, making the ramp-up of production levels crucial for its stock price. Market analysts believe that quick progress toward acquiring regulatory approvals for the 737 MAX-7 and MAX-10 variants will be essential as the company moves forward.
In a related development, Reuters has reported that Boeing plans to replace workers at its defense unit in the St. Louis area who have been on strike since August 4. This decision comes alongside the company’s intention to begin training new hires to take over roles in munitions production and assembly.
Despite the ongoing challenges, Boeing stock has seen an impressive surge, gaining nearly 22% this year. As the company prepares to release its earnings report on October 29, expectations are high regarding discussions around the scope and costs associated with the delays impacting the 777X program. This upcoming report is anticipated to provide further clarity on the financial state of Boeing amidst these operational hurdles.
