Here's what investors need to know before Boeing's earnings as Dreamliner issues mount

Published Tue, Jul 27 20211:59 PM EDTUpdated Tue, Jul 27 20214:43 PM EDT

Boeing is expected to report its seventh consecutive quarterly loss before the market opens on Wednesday, according to analyst estimates. Now that problems are mounting in its 787 Dreamliner program the question is: How long will the losing streak last? Earlier this month, Boeing disclosed a manufacturing flaw in a new area of the twin-aisle jetliners and slashed its delivery forecast to fewer than half of the Dreamliners in inventory that haven't been handed over to customers. CEO Dave Calhoun predicted in June that the company would deliver the "lion's share" of the roughly 100 Dreamliners in its inventory this year. The 787 Dreamliner problems aren't Boeing's only challenges. Earlier this year, Boeing reported more delays on the 777X as well as hiccups in its Air Force One program. "Every quarter it's something new," Credit Suisse senior aerospace equity analyst Robert Spingarn said. Investors should pay close attention to Calhoun's commentary about the latest issues and the company's plan to address those problems and the hangover from the Max and Covid-19 crises. At the same time, the company has won a slew of big orders for its 737 Max — the plane regulators just started clearing for flight in November after crashes in 2018 and 2019 killed 346 people. Analysts expect revenue to jump 40% from last year's paltry sales during the depths of the Covid-19 pandemic. However, the company is likely to face questions about the pace of the recovery and when it expects to generate cash. Its stock is down 7.2% this quarter through Tuesday's close, compared with a 2.4% gain in the S & P 500. Wall Street expects an adjusted loss of 81 cents a share from the aerospace giant. Here's what investors should watch when Boeing reports results: 787 Dreamliner forward loss? Boeing halted deliveries of the Dreamliners in May for the second time in less than a year to address the plane's manufacturing flaws. It said it plans to "temporarily" lower its production rate to under a reduced rate of five a month, which could drive up costs. That deprives Boeing of much-needed cash since the majority of an aircraft's price is paid when the manufacturer hands it over to customers. In addition to the inspections and potential repairs, Boeing is waiting for the Federal Aviation Administration to sign off on its inspection method. Credit Suisse's Spingarn said the 787 problems raise the question of whether the FAA — fresh from additional scrutiny following the Max crashes — is looking harder at Boeing or whether Boeing introduced a change into its manufacturing process. Regardless of the cause, an extended pause and additional work bring up the possibility that Boeing reports a forward loss on the program. American Airlines had expected to receive 11 Dreamliners this year but said most have been delayed. "We don't quite know when they will come in, but we're working with Boeing to try to get those," CFO Derek Kerr said on an earnings call last week. Boeing delivered 14 Dreamliners in the first half of 2021, compared with 36 at the same point last year. Covid concerns linger Air travel has surged in the U.S. since vaccines rolled out broadly in the spring. Airlines including Southwest , United and Alaska have ordered hundreds of Max jets as they replace older planes and prepare for growth as the pandemic wanes. Investors should listen for Boeing commentary on its production rate for the Max, which it expects to drive up to 31 a month in 2022. Ryanair on Monday said it would consider buying the Max 10, the largest model, if the price is right. Boeing needs more airlines to return to financial health in order to fuel new orders. But the highly contagious delta variant is keeping many travel restrictions in place even though case counts in the U.S. and elsewhere are still lower than the peak earlier this year. That could limit demand for long-range jetliners that are used for international routes. The Centers for Disease Control and Prevention on Tuesday reversed earlier guidance and recommend that even individuals who are fully vaccinated wear masks indoors in Covid hot spots. China Nearly all major aviation authorities around the world have recertified the 737 Max for flight. China is the notable exception. An approval from Chinese aviation authorities to allow the 737 Max to fly again and open up more deliveries would help Boeing's cash flow. The company is also likely to field questions about lingering trade tensions between the U.S. and China, and what its outlook is on future aircraft sales.

A Boeing Co. Dreamliner 787 plane with AirEuropa livery moves past the company's final assembly facility in North Charleston, South Carolina, U.S., on Tuesday, Dec. 6, 2016.

Travis Dove | Bloomberg | Getty Images

Boeing is expected to report its seventh consecutive quarterly loss before the market opens on Wednesday, according to analyst estimates.