Boeing Co.’s new practice of waiting until its bills are months past due before paying them is already having an impact on at least two of the aerospace giant’s suppliers.
Kelly Ortberg, the head of Rockwell Collins Inc. — which makes cockpit displays for the 787 Dreamliner built in North Charleston — said this week that Boeing’s failure to make timely payments “has contributed to some of our underperformance here this quarter in cash flow, which is disappointing, but we’re working that with them.”
And U.K.-based GKN Plc, which has a manufacturing plant in Orangeburg County, reported it is working out a prolonged payment schedule with Boeing that is having a negative impact on the company’s finances.
“They’re a big customer to us so, clearly, if they move their payment terms it has an impact on our working capital,” said Adam Walker, GKN’s chief financial officer.
The news comes just weeks after Boeing said it will start waiting up to 120 days to pay its vendors’ bills instead of making payments within 30 days as it has done in the past. The move is designed to improve cash flow at Boeing, which is under pressure from investors.
Boeing spokeswoman Jessica Kowal said specific contract terms with the company’s suppliers are proprietary, but the company “pays those contracts according to the terms negotiated.”
“To align with industry norms and support our competitive position, we are in the process of adjusting the payment terms of our large suppliers,” Kowal said, adding that Boeing is paying its suppliers as quickly as those suppliers pay their own bills. “A review of publicly available financial information will show that Boeing has historically offered — and continues to offer — payment terms that are among the most generous in the industry.”
Rockwell Collins notched a year-over-year increase in earnings at $1.33 billion, or $1.63 per share, for the third quarter of fiscal 2016. The company’s cash flow, however, was short of analysts’ estimates at $138 million for the quarter. Rockwell also issued a disappointing prediction for year-end cash flow.
Patrick Allen, Rockwell’s chief financial officer, said Boeing currently owes between $30 million and $40 million in past-due bills.
“And it’s not really a contractual issue, it’s just they haven’t paid us,” Allen said during a conference call with analysts.
Ortberg, Rockwell’s chairman, president and CEO, said Boeing’s decision to pay its bills late is unusual.
“They’ve normally been paid good,” Ortberg said. “I hope it’s just a blip. Our avenues are to work our strong relationship with them and get that resolved, and we’re in the process of doing that.”
Rockwell’s full-year cash flow — projected by the company to be about $750 million — could come in even lower because the supplier has not factored in Boeing’s later payments through the end of its fiscal year.
“That’s not in accordance with our contracts that we have with them, so we’re expecting them to withhold that,” Ortberg said of the late payments during the conference call.
Boeing, which employs about 8,000 people in North Charleston, will release its second-quarter earnings Wednesday. For that period a year ago, the company reported a $1.11 billion profit.
Boeing last week warned shareholders it will take a $2.05 billion earnings hit for the quarter, in part because the company has decided it won’t refurbish and sell its last two 787 test jets. The accounting charges also involve the 747-8 air-cargo and KC-46 aerial tanker programs.
Boeing had planned to sell the two seven-year-old 787 Dreamliners after refurbishing and modifying them for commercial use. Scuttling that plan will result in a charge of $847 million, or $1.33 per share. The costs are being written off as research and development expenses.
Boeing has not determined what it will do with the airplanes, spokesman Chaz Bickers said.
The jets were made at the company’s commercial aircraft manufacturing hub in Everett, Wash. Boeing also assembles the 787 in North Charleston, where the first South Carolina-made Dreamliner rolled out of the hangar in April 2012.
Analysts predict Boeing will announce Wednesday a loss of 92 cents per share on revenue of $24.1 billion during the second quarter.
That compares with earnings of $1.62 per share on revenue of $24.5 billion for the same period a year ago.
Reach David Wren at 843-937-5550 or on Twitter at @David_Wren_