Boeing Takes Steps to Improve Cash Flow

The aerospace giant is taking longer to pay its supplier bills after depleting its cash pile to buy back shares.
Matthew HellerJuly 7, 2016

Boeing has extended its vendor payment schedules and reduced factory inventory as the aerospace giant continues to try to conserve cash.

The new payment terms are being rolled out this year, Reuters reported, with Boeing taking up to 120 days to pay, rather than 30 days as in the past. Inventories are being reduced by having suppliers hold parts instead.

A Boeing spokeswoman said the changes were necessary to accommodate airlines that want more capable planes at lower prices. Investors have also been closely watching Boeing’s cash flow.

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“We are in the process of adjusting the payment terms of our large suppliers,” spokeswoman Jessica Kowal said. “In most, if not all cases, our new payment terms are in line with their payment schedules to their own suppliers.”

The owner of a mid-sized machining shop that makes parts for Boeing said payment terms shifted this spring. “We went a whole month with no receivables from Boeing,” the owner told Reuters, adding that Boeing now pays in 60 days, not 30.

Boeing reported $1.2 billion in cash flow for the first quarter, and has estimated $10 billion operating cash flow for the entire year. But according to BidNessEtc, it is facing a “serious cash on hand problem” in part because it has spent nearly $19 billion to buy back shares over the past three years.

“While many investors like having excess cash returned via buybacks, some Boeing analysts worry the company is unwisely borrowing from the future,” The Wall Street Journal said. “The worry is what will happen to cash flow if sales fall from their current very high levels.”

Under a program launched in 2012, Boeing suppliers cut prices 15%. Executives at suppliers say the company is pushing a renewed round of cost cutting.

“I think they’re looking under every rock,” said Dave Gitlin, president of United Technologies Aerospace Systems.

To improve cash flow, Boeing has also asked some of its customers for earlier payments. United Continental, for example, accelerated roughly $330 million to the company during the fourth quarter of 2015, according to regulatory filings.