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UPDATE 6-Boeing reports loss, but first positive free cash flow since 2018

(Adds more comments on China, 737 MAX, analyst, updates shares)

By Valerie Insinna and David Shepardson

WASHINGTON, Jan 25 (Reuters) - Boeing Co losses widened for 2022 on weakness in its defense unit as it warned of further supply chain issues, but the U.S. planemaker reported its first yearly positive cash flow since 2018.

The U.S. planemaker missed Wall Street expectations on revenue and earnings per share in the final quarter of the year. Boeing shares, which have risen by more than 70% since September, fell 1% Wednesday.

Boeing Chief Executive Dave Calhoun told analysts the planemaker still faces "a difficult, difficult supply chain and while average deliveries met our objectives, we continue to face a few too many stoppages in our lines ... So those stoppages, while they are coming down, are not where they need to be."

Chief Financial Officer Brian West said the company was increasing its abnormal accounting estimate by about $600 million as it expects 787 production to remain lower for "a bit longer than expected due to a supplier constraint," but still expects to raise its production rate to five per month later this year.

Boeing affirmed plans to deliver up to 450 737 MAX narrowbody aircraft and 70 to 80 widebody 787 Dreamliners in 2023. The company reiterated it expects to generate $3 billion to $5 billion in free cash flow in 2023.

Those numbers do not include the much-anticipated restart of Boeing jetliner deliveries to China. Calhoun declined to comment on when Chinese airlines could begin accepting aircraft from Boeing.

"Within China, they need the MAX to fly to satisfy those demands," said Calhoun, who called the potential opening of the Chinese market a "serious bump" for the entire aviation industry.

Boeing previously expressed interest in remarketing a portion of the Chinese 737 MAX planes, but Calhoun said Wednesday Boeing would "pause" its efforts "so that we can discern what China wants to do."

China Southern Airlines began flying the 737 MAX

earlier this month

after an almost four-year pause.

About 138 of the 200 737 MAX planes in storage are meant for Chinese customers.

The supply chain issues come as Boeing is working to stabilize and ramp up production.

'SIGNIFICANT PROGRESS'

Third Bridge analyst Peter McNally said Boeing in 2022 was "showing some significant progress in key areas, although the reported financial results were mixed."

Boeing said net losses rose to $5 billion for all of 2022 from $4.3 billion in 2021, while losses from operations rose to $3.5 billion in 2022 from $2.9 billion.

Boeing generated $3.1 billion in free cash flow in the final quarter of 2022. It had forecast about $2.5 billion in free cash flow for the fourth quarter. Boeing reported $2.3 billion for all of 2022.

Boeing reported fourth-quarter revenue of $20 billion, up from $14.79 billion in 2022, and a loss per share of $1.75. Boeing had been expected to report $20.38 billion in revenue in the quarter and a gain of 26 cents a share, according to Refinitiv data.

While supply chain bottlenecks could continue to be a struggle for the aerospace industry at large, McNally pointed out that jetliner demand from airlines remains strong and Boeing has demonstrated an improved ability to ramp up deliveries.

“We haven't had a hiccup in some time in the supply chain and deliveries are directionally improving, and they affirmed the (delivery) guidance,” he said. “As of right now … I don't really have a good reason to doubt their ability to hit these numbers because customer demand is there.”

Last month, Boeing won approval from Congress to lift a deadline imposing a new safety standard for modern cockpit alerts for two new versions of 737 MAX aircraft. Without a waiver, the planemaker had said the MAX 7 and MAX 10 airplanes were at risk.

Calhoun said he thinks the MAX 7 will have its first flights this year and the MAX 10 "probably" next year.

Congress said Boeing must retrofit existing MAX airplanes with safety enhancements as part of that waiver. West said the provision to account for retrofits costs was "small." (Reporting by Valerie Insinna and David Shepardson; Editing by Leslie Adler, Louise Heavens and Nick Zieminski)