Boeing Co. (IW 500/9) is “delinquent” on some payments to avionics supplier Rockwell Collins Inc. as the plane maker moves away from its traditional reimbursement practice to better manage cash.
The new payment strategy by Boeing, the world’s largest aerospace company, hurt Rockwell Collins’s cash flow during the quarter ended June 30, said Kelly Ortberg, CEO of the Cedar Rapids, Iowa-based equipment-maker. His company supplies cockpit displays for Boeing’s 787 Dreamliner and 737 Max and other avionics equipment.
Rockwell Collins’s cash flow was scrutinized by analysts during an earnings call on June 25 after the company reported $138 million in free cash flow, short of analyst estimates, and said it expected to generate $750 million in free cash flow for 2016, the low end of previous guidance.
“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.”
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.”
A Boeing representative couldn’t be reached immediately for comment.
Reuters first reported that Boeing was shifting supplier payments from 30 days to as many as 120 days.
By Julie Johnsson