Boeing Co (NYSE:BA) is taking strategic steps to remain relevant and competitive in the aircraft industry. The firm recently announced plans to reduce inventory and cut costs.
Boeing executives revealed that the latest decisions by the company would cause delays in payment to vendors. The new terms dictate that the firm will take as much as 120 days before making payment compared to the 30-day period in the past. The new changes will also take effect this year. The decisions might also be part of the firm’s move to conserve cash following the recent share buyback which consumed a huge chunk of the company’s cash resources.
The move has led to a slump in the value of the company’s shares. The changes are also influenced by the rising demand for planes that offer better performance at lower costs. Jessica Kowal, a spokeswoman for the company, stated that the firm is adjusting its payment terms with its major suppliers so that it can remain competitive. Kowal also pointed out that the new payment schedule also aligns with the payment schedule of their suppliers.
Boeing’s VP of Supplier Management Kent Fisher stated that it is necessary for the company as well as is suppliers to acknowledge that there is the need for a shift in focus so that it can lower the cost of building airplanes. One of the shops that make parts for the company revealed that payment terms changed earlier this year and the changes have also taken place at a time when investors have a close eye on the company’s cashflow.
A report from the company revealed that it had a cash flow of $1.2 billion in the first quarter this year and had an estimated cash flow of roughly $10 billion the whole year. However, it spent about $19 billion to repurchase shares in the past three years thus limiting its cash. Having a limited cash pool is not good for the company because it will most likely end up buying and investors often see this as a bad move for the company’s future.