Delayed Boeing Payments Pinch Cash at Rockwell Collins, GKN

Updated on
  • Rockwell Collins says $30 million to $40 million outstanding
  • Planemaker lengthens payment terms per ‘industry norms’

Boeing Co.’s efforts to stretch payment schedules to better manage cash is starting to affect finances at suppliers including U.S. avionics producer Rockwell Collins Inc. and U.K. parts manufacturer GKN Plc.

Rockwell Collins said Monday that it’s still waiting to collect $30 million to $40 million for goods and services provided to Boeing, the world’s largest aerospace company. GKN said Tuesday that it’s in discussions with the U.S. planemaker on its policy changes.

The shortfall clipped Rockwell Collins’s cash flow during the quarter ended June 30 and breached contractual agreements between the two companies, said Kelly Ortberg, chief executive officer of the Cedar Rapids, Iowa-based equipment maker. His company supplies cockpit displays for Boeing’s 787 Dreamliner and 737 Max models, along with other avionics.

“In general, this is catching the supply chain off guard and it’s inconsistent with our contract,” Ortberg said in an interview. While Boeing notified Rockwell Collins it was slowing supplier payments, “they’re delinquent for payments they had for the quarter.”

GKN’s Components

The planemaker is negotiating a prolonged payment schedule with Redditch, England-based GKN for parts including winglets, cabin windows and ice protection systems supplied across Boeing’s commercial fleet. Those changes have “already had an impact” on working capital, GKN Chief Financial Officer Adam Walker said Tuesday, adding that the company still managed to almost double free cash flow in the first half of the year to 40 million pounds ($52 million).

“Clearly if the payment terms will lengthen, then it isn’t helpful to us,” Walker said on a call with reporters. “The balance of power lies a little bit with them in that discussion.”

Boeing spokeswoman Jessica Kowal declined to discuss the specifics of the planemaker’s payment terms with Rockwell Collins, citing proprietary information. “Boeing adheres to all signed contracts with its suppliers and pays those contracts according to the terms negotiated,” she said by e-mail.

The U.S. planemaker is in the process of changing its payments terms for large suppliers “to align with industry norms and support our competitive position,” Kowal said. “In most, if not all, cases, our new payment terms are in line with our suppliers’ payment schedules to their own (sub-tier) suppliers.”

A spokeswoman in Europe for Chicago-based Boeing declined immediately to respond to the comments from GKN’s Walker, which were made before U.S. business hours.

Cash Forecast

While Rockwell Collins’s third-quarter profit of $1.63 a share beat estimates, analysts on a conference call focused on its disappointing cash receipts. The $138 million generated in the quarter was short of estimates, and the supplier’s earnings release predicted free cash flow would total about $750 million for 2016, the low end of its previous guided range.

Ortberg said slower payments from Boeing, the U.S. manufacturer’s third-largest source of revenue, were a factor. The two companies are in talks and Ortberg said he expected the matter to be cleared up this quarter, Rockwell Collins’s fourth reporting period for fiscal 2016.

“We have contracts that we have to uphold, they have to uphold going forward,” Ortberg said. “At this point we’re working to get it all resolved.”

Reuters reported earlier this month that Boeing was shifting supplier payments from 30 days to as many as 120 days.

Rockwell Collins fell 1.3 percent to $84.08 at the close in New York, leaving the shares down 8.9 percent this year. GKN, which reported first-half profit on Tuesday that beat analyst estimates, rose 2 percent to 295.7 pence as of 10 a.m. in London.

(Updates with GKN talks in second paragraph, CFO comment in sixth.)
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