(Updated with CEO comments) Boeing ekes out profits in 2Q, 1H; BCA continues loss

July 28, 2021, © Leeham News: The Boeing Co. today reported a slim profit for the second quarter and first half of 2021. But Boeing Commercial Airplanes still is in a loss-making position, though considerable progress was made in reversing losses for the past two years.

Boeing did not take a forward loss on the 787 program, as feared in some quarters (but not LNA). Due to halting deliveries because of a production issue, Boeing lowered the production rate below 5/mo, to an unannounced figure, leading some to speculate the company would take a forward loss today.

LNA learned the rate might go as low as 2/mo for some weeks.

The press release is here. Boeing’s earnings call will be at 10:30 AM EDT. The webcast may be heard here. The earnings call presentation is here.

Financial Data

Boeing reported revenues rose 44% for the second quarter, from $11.8bn to $17bn. The company reported an operating income of $1bn vs a loss of $3bn the year before and a net profit of $567m vs a loss of $2.4bn. For the first half, revenues were $32.2bn vs $28,7bn, a rise of 12%. The operating income was $940m vs a loss of $4.3bn. Net income was $6m vs a loss of $3bn. Cash used in the quarter was $483m vs $5.3bn used a year ago. For the half, Boeing consumed $3.9bn in cash vs $9.6bn. Boeing ended the quarter with $21.3bn in cash and marketable securities.

The profits are slim, to be sure, but the upward movement is significant. Boeing Commercial Airplanes reported revenues of $6bn for the quarter vs $1.63bn a year ago. For the first half, BCA revenues were $10.3bn vs $7.8bn. The operating loss was $472m in the quarter vs a loss of $2.8bn a year ago. For the half, the operating loss was $1.3bn vs a loss of $4.8bn.

MAX recovery

Boeing delivered 130 737 MAXes since the airplane was recertified in November. The production rate is now about 16/mo with a target of 31/mo early next year. It also returned 190 MAXes to service of the approximately 387 that had been grounded by global regulators in March 2019.

CNBC comments

CEO David Calhoun, speaking on the financial program CNBC in advance of the earnings call, said, “We are in a transition year. We are nowhere near where we want to be. Our defense business had a very solid quarter.” There also were no charges that investors became accustomed to.

CNBC  aviation reporter Phil LeBeau asked Calhoun about the lengthy inspections Boeing is doing on the 787. Production and quality control issues caused Boeing to suspend delivery of the model last October. It was resumed briefly in May before being suspended again.

“This is Boeing being tough on Boeing,” Calhoun said. “We started the inspection process. We have to be perfect. We have to get every quality issue out of the airplane. [This is] nowhere near the safety window. Most of these conditions were pre-existing almost from the start.” There are now about 100 787s in inventory, which must undergo inspections. Boeing said perhaps half will be delivered this year, a reduction from the previous forecast that nearly all would be.

Boeing produced a video about the current issue, which may be seen here.

LNA reported Monday that the Federal Aviation Administration returned certification authority on the 787 to Boeing on June 19. Calhoun said the FAA is working with Boeing cooperatively on the current inspection process.

China’s market

He also said the US government is well aware that if the US cedes the Chinese market—which in this case, relates to Boeing—“the other guy” (Airbus) will fill it. Calhoun remains confident recertification of the MAX will be coming soon in China. (LNA understands that certification flights may begin in September or October.)

Calhoun believes passenger traffic recovery will return earlier than forecast at the start of the COVID-19 pandemic.

“We have to be ready for recovery in 2023. Domestic travel has already recovered. I believe by the time we get back to the second half of 2022, airlines will be planning for recovery in 2023,” he said.

 

54 Comments on “(Updated with CEO comments) Boeing ekes out profits in 2Q, 1H; BCA continues loss

  1. “””We started the inspection process. We have to be perfect. We have to get every quality issue out of the airplane. [This is] nowhere near the safety window. Most of these conditions were pre-existing almost from the start.”””

    Makes no sense.
    Then why asking to certify an algorithm shimming inspection for an not automated assembling process if they want to be perfect.
    Then why were 787 grounded before if it is no safety issue.

      • I suggest timing of statements be looked at, for example it would make sense to ground IF severity of the condition is not adequately understood, then ease off as it is better understood.

        And be precise, which ‘Leon’ is not: ‘ground’ was not the entire fleet, only aircraft in production? You say ‘inventory’ which means airplanes not yet delivered to customers. That makes sense – inspect and rectify before delivery to customer is best for customer unless they are desperate for lift. (In which case relatively minor discrepancies might be accepted for a while.)

        But ‘Leon’ is a 4B who often does not make sense.

        BTW, while Calhoun should try to be very clear, and have key statements written down, I don’t hang on every word of an interview or phone call with financial types. It is easy to omit a word, which reduces clarity/precision. Perhaps intelligent questions during the interview/call help, but I have a low opinion of financial pontificators and media people.

    • I think you can take David Calhoun on face value.
      My interpretation is that
      1 There is a QA issue in tolerances on a part of the airframe.,
      2 The deeper issue is the QC, that an less than ideal process for measuring and sampling was chosen.
      3 Then there is a CoQ cost of quality issue where there are hidden costs (eg rework), the iceberg effect, and where many minor issues tend to hide other issues.

      I think the main thing Calhoun is doing is cultural. He is signalling to management and the workforce that attitudes have to change, they have to be more precise, less tolerant.

      • William:

        I think this is well beyond signaling, though it does seem to have come out of Boeing initially.

        Stopping deliveries totally is earth shaking.

        • Both Akbar Al Baker and Sir Tim Clark have shown their willingness, rather keenness it could be said, to reject aircraft from both Airbus or Boeing if things aren’t right. They’ll also threaten to hold up or change purchase decisions on past quality. Who remembers Sir Tim’s disputes with RR over A380 engine performance. Al Baker has rejected A320 with PWG engines and talks about why he did so in press conferences. I’m sure Calhoun has met both men. What happened to Norwegian with their B787 Trent issues and of course the MCAS disaster means an abundance of caution is appropriate for these airlines and their CEO are right.

          Even the days of a launch customer like Lufthansa with its Lufthansa Technik arm hacking its way through issues with the airframe and engine maker is getting less palatable.

          • @William

            Very good observations

            The airlines you mention perform the necessary job of obliging a dominant duopoly not to take their situation for granted, to reform their planes iron out all details before delivery rather than after

            As notably was not done on the 787, regulatory capture carries a very heavy price, just like program accounting, the can can not be kicked forever

            But few think that Chair Cal is up to the task of reforming management and engineering at BA so that the company can reform manufacture of new planes to much higher standards than in the past

            He’s more suited to financial and accounting manipulation, and without sufficient political skills to obtain significant Administration support to avoid sacrifice in the USChina wargame

            The gross very public failures disasters of the Max and the FC66 warplane have cost him plenty goodwill

            BA was careful enough to praise court lavish and pay Obama plenty back in Obama’s day, looks like they have ignored Biden

            But hey it’s never too late to fund up a Presidential Library or whatever

          • @William

            Further to last

            This kind of industry organisation, as far as BA is concerned, is what happens with FAA reg capture

            Market discipline, of a sort, must step in to impose a kind of order which goes a little way to correct the stupidities errors etc of BA management

            But will not allow BA to reform and no chance of catch up with AB for market share, and no influence to counter stronger market/political forces for no re cert in China

            Such a BP was anticipated here by @Frank

            BA becomes the instrument of
            a) monopoly scale lessors
            b) the US majors for dumpster price Maxes
            c) International airlines such as EK ++ for the 787 777 etc
            d) Any new aircart project will be financed by PE and managed as, in effect, a separate unit implanted into BA
            e) China regulator will impose t&c for RCEP market, if there is some lull to the wargames
            e) DoD will have to give up hope that BA can build a combat aircart

    • Boeing promises and certifies that the build planes to blueprint and every deviation is processed according Boeing and FAA procedures. When you discover it is not the case you need to act even though you can analyse that the defect is not effecting the aircraft during its certified life or it will be discovered and corrected at a heavy check often thru issue of a Service Bulletine. You need to satisfy both your internal rules and the FAA and EASA regulations.

      • No heavy check is going to find these kind of tolerance variances.

        Both Boeing and Spirit had to look deep into areas that are not part of heavy checks.

        That both had the same problem in different parts is interesting.

        • You just add it as a requirement with a report form. Of cause it needs to specify how and with what calibrated tooling you perform the measurements.

          • I would agree with that, but its is not going to be done on a heavy check without that.

            Frankly if its deemed an issue then it likely would be done before a heavy check.

            They may even know when things went off the rails though Calhoun’s statement taken at face value would indicate they were out of spec to start with.

            It may be determined that nothing needs to be done on delivered aircraft.

          • A heavy check is supposed to examine things closely.

            Should detect cracking on surface, challenge comes with layers (doublers), such should be part of development of the check details.

            Of course once problem conditions are known specific inspections will be added.

            There’s analysis of crack growth rate and criticality of structure. I recall that Lockheed-Georgia used a wing inspection interval of one-fourth the predicted time to critical crack length (1/2 for variability times 1/2 on assumption first inspection missed a crack), after a Saturn L382 fell out of the air.

            Wing of the C-130A that later came apart in fire-fighting operation had a doubler that hid the crack, apparently no one thought hard about how to detect severe cracks under the doubler.

            But here I don’t understand consequences of 787 shimming defects to be that severe.

            Much sophistication in reviews and inspections these days. Some general criteria vary with environment and type of operation – for example, corrosion in wet fuel tank structure caused by microbes that dine on jet fuel, biocide should be used in the fuel.

            But people have to do the job conscientiously, from design through manufacture to analysis to maintenance (inspection). Including paying attention, which helps catch the unexpected.

    • So, if the FAA drags its feet reviewing/approving this new 787 quality control algorithm from BA, will BA just continue its delivery hiatus for as long as it takes (perhaps indefinitely)? Or will there come a point in time at which someone at BA will realize that a different approach is needed?

      The current approach is extremely passive/reactive: one would expect a more proactive approach from a company that wants to be a leader.

    • The art of talking a lot without saying anything.

      I agree that “[m]ost of these conditions were pre-existing almost from the start.” Previously it’s all self-certified. Now the emperor is without clothes, therefore he can talk, talk and more talk …. Will EASA allow this bs? China?? Hah.

      • Can’t disagree with that but if they meet the certification specs then EASA nor China have any reason (nor have show any) to de-certify it.

        Its what is going on culture wise with Boeing that is relevant.

        Right now they are finding issues that should have been found before, but they are not getting covered up and are being dealt with.

        I am quite happy to see the process where Boeing proposes something, the FAA disagrees that it was sufficient (or agrees it is ala the MAX wiring) and then proceeds from there.

        The wiring fix was approved despite a lot of rhetoric how end of the world it was.

        Its been noted that Boeing is undergoing a Cultural shock, on the 787 the old way of doing things is not flying.

        Same is true on the 777X where the FAA refused TIA into compliance testing (we aren’t risking our people until we think you have it right)

        Basically the letter to the Boeing ODA head said you aren’t doing your job.
        Until you do, this is not going to proceed.

        While the preferred patch is that ODA and FAA are actively engaged and working the details out, Boeing is on notification if they don’t, things stop.

        Working in lockstep is like an Operating control. That is the best.

        FAA stopping things is the safety. Something went wrong with the operating control, we stopped the process, you need to fix that operating control.

        Boeing is not going to turn on a dime the way it operates, bad habits have inertia.

        Its more than a valid question if they are actually trying to turn it around or they are still in bad habit momentum.

        Its going to be years before we find out. Its interesting to see it in process and where it goes.

        I don’t say it at all casually, but the reality is Aviation has always advanced on screw ups. People die, changes are made. Bad habits creep in and become the norm. Changes are made, it gets reset.

  2. More smoke and mirrors from a once great aerospace company. So, Boeing is ‘inspecting’ quality into the completed airplane’s, should be the other way around… quality is built in.
    Boeing said PERHAPS half the 787’s in inventory will be delivered this year?? How’s that for a plan.
    Hope is not a strategy.

    • > Boeing said PERHAPS half the 787’s in inventory will be delivered this year?? How’s that for a plan. <

      I thought that bit was interesting, as well.

      • You need to shift the thinking, so here is an example.

        You are one of those guys who like to cliff climb.

        Unfortunately you also are also sloppy and don’t inspect your equipment, and you fall into a gorge and get knocked unconscious and you smashed your cell phone.

        When you come to, you take stock.

        Ok, you have to get out of the gorge. But you have to make a plan, try it, see, maybe more than once.

        When will you get out of the gorge? You don’t know. You get out when you get out. Getting out of the gorge is the job ahead (if you canyon)

        Boeing does not know how long the process is going to take (and don’t forget we have Spirit involved in the pressure bulkhead and the front landing gear)

        The FAA (at least for now) has changed and Boeing is now navigating a landscape the PR and spin do not work on (they are only doing that on investor stuff).

        And say they delver 2/3 of the Airframes by the end of the year. Oh happy day. Management has come through and worked miracles and it looks much better than, ooops, we missed another target.

    • Hope springs eternal. CEO/CFO are paid to sound like optimist (like many sell side “analysts”[salesman!]), maintaining the facade. The show must go on!!

  3. I am a bit puzzled by Rate 2 for a few weeks, rate is really a matter of months so its m ore what the overall rate impact is not a few weeks (my opinion)

    • “Year end” is also when the C919 will be certified in China.
      It’s in China’s interest to stretch MAX re-cert out and use it as leverage to win (some sort of) US approval of the C919. And if that doesn’t come, then China can just give the US a middle finger and order Airbuses, Irkuts and/or their own C919s instead. The Chinese are in a comfortable negotiating position here.
      Calhoun admits in the link that he’s working on an “assumption”. In reality, the Chinese are probably just leading him along with a carrot and stick

      • “[Calhoun] noted China’s need, for example, for the Max to support its post-Covid traffic growth and the 2022 winter Olympic games in Beijing as factors that point toward a positive prospect for the airplane’s certification by year-end.”

        Flight data shows A330s are working hard within China. A small NB for a big international sports event?? I don’t buy this hot air!!

        • China could pick up loads of used A330-300’s now and fly domestic as airspace and slot availability is not always great. Still getting new A321neo’s for domestic/regional flying should be cheaper in the end.

  4. @TW

    See Bryce’s recent link about how badly ChinaUS diplomatic relations are, even tho’ Presidential summit is not off the cards, yet

    US has sanctioned China where it hurts, US have arranged the kidnapping of the Huawei founder’s daughter, sanctioned the company the semi conductor industry, etc etc

    All this will not continue without a China riposte or a summit deal to call off the dogs

    China is building their own sanction legal enforcement structures, and so on: most countries are aware it is more useful to keep out of the way but trade with China rather than with the US sanctions régime

    Chairman Cal is fabulating (PR speak for talking up the market) if he thinks Max re cert is anything like close to approaching a cert

      • @TW

        How boring is politics when it gets in the way of business or discussing shim seat pitch

        Chair Cal found out the hard way

    • [Edited]

      Boeing should get the go ahead from China here in the next couple of months.

    • Objection! 4B Gerrard White.

      Claiming US arranged kidnapping of the CFO of Huawei is incompetent and scurrilous behaviour by you.

      The US justice system charged her with misleading a bank about dealings a subsidiary of Huawei had with Iran.

      Canadian authorities picked her up when she changed planes in Vancouver BC, she has been fighting extradition from Canada to the US ever since. Not successfully, but she says she recently obtained evidence that should clear her, a Canadian court ruled that may be evidence for court proceedings in the US but not justification to avoid extraditing her to the US. (The role of the Canadian court is to determine if the US has grounds to charge her with a violation of US law, which would trigger extradition.)

      Countries like Canada and the US have formal extradition proceedings with each other. At least two murderers were extradited from the US to Canada in recent years. The bleep who fomented the suicide of a teenager in Canada has recently been extradited from Holland and is now in court in Canada. (Not all countries have extradition treaties, and they may vary. Canada-Germany excludes citizens of Germany – so Canadian authorities waited until a dual-citizen person charged with fraud in Canada changed planes in Amsterdam. A policing organization called Interpol publishes lists of wanted persons. Totalitarian regimes probably abuse that list.)

      • @Keith, @Gerrard: Huawei is off topic and not relevant to LNA.

        Knock it off, or comments will be closed.

        Hamilton

  5. For those who simply refuse to believe that BA margins are paper thin, please refer to today’s LNA Twitter feed, where Scott has quoted the interim CFO as saying that 787 margins are “near to zero”.

    • Latest from LNA Twitter feed, “[S]surprise. There were only 10 (Ten)
      @Boenig 737 MAXes delivered from inventory in the second quarter, according to SEC filings.”

      “Since the MAX was recertified, Boeing has delivered about 60 from inventory and +/-130 in total (ie, +/- 70 from production).”

  6. Another re-fleeting face-off between BA and AB — this time for British carrier Jet2, which is currently a BA customer but may be about to switch to AB.
    One way or another, it’s a new headache for BA — because either it will lose a customer, or it will have to suffer more paper-thin margins to keep that customer. Since AB is producing narrowbodies at a higher rate than BA, BA has higher unit production costs.

    “Exclusive-Jet2 eyes switch to Airbus in new plane talks -sources”

    https://www.metro.us/exclusive-jet2-eyes-switch-to/

    • I think Boeing 737-10 has a good chance as the pax mix and runways/stage lengths fits the 737-10 that should be able to achieve the lowest seat mile cost unless JET2.com want 240seat A321neo’s.

    • The A330neo can make life very tough for the 787, because AB is in a better position to offer a sharp discount — and still make a profit — on the neo. BA on the other hand has mushrooming costs on the 787, and will need to charge higher prices just to break even.

      • Well that was the theory on the Hawaiian order and it proved not to be true. Airbus was incensed that Boeing was willing for lower margins.

        Boeing can determine it just looses less money by selling more aircraft. It spreads the cost of the program out over more air frames reducing the cost of them.

        Its partly about margin and its partly about what Airbus wants to do with the A330 vs the A350.

        They still have to keep the A330CEO going to fill the A330 MRT orders (unless like Spain and Australia they buy used frame to convert)

        Condor gets out of its leases, probably lease back on the A330NEO and 19 over 2 years is rate 1 or so.

        Delta has 26 on order.

        • The Hawaiian order was placed when the 787 was at rate 14/mo. It’s now at rate 5/mo (+ immediately parked) and going toward rate 2/mo.

  7. Reuters: Jet2 eyes switch to Airbus in new plane talks

    Bloomberg:
    -> The company has *largely* resolved technical issues raised by China’s aviation authority

    Would China “partially” unground the 737 MAX?? 😄

    -> The balance of deferred production costs still on Boeing’s books from the Dreamliner’s troubled start rose by $124 million in the second quarter to $14.9 billion, reversing years of declines.

    -> Boeing isn’t netting much cash by clearing its inventory of the aircraft, either. Airlines are mostly using credits, both for advances already paid to the planemaker and compensation for the grounding, Agency Partners analysts Nick Cunningham and Sash Tusa said in a Tuesday report.

    -> Bloomberg Intelligence analyst George Ferguson expects Boeing’s revenue to be affected in the near-term by a spate of 737 Max deliveries to Southwest Airlines Co., which used credits to lower its cash payments. So even with the jetliner business gaining steam, Boeing will have to continue relying for a while on its defense and services businesses.

    • Reuters:
      Calhoun added that Boeing may need to rethink its plan for production rate increases if the 737 MAX is not approved in China by year-end.

    • Pedro:

      Clearly Boeing BAC has a long way to go to dig itself out of the morass (if it ever does)

      What Boeing management inflicted on the company is a done deal.

      What is of interest is where it goes from here (and it won’t be a smooth patch, you don’t turn things around on a dime)

  8. Reuters:
    -> Airbus has predicted full-year deliveries at least equivalent to last year’s total of 566, down 34% from 2019. In this year’s first half, Airbus delivered 297 aircraft after a surge in June, putting it on course to exceed full-year targets given its pattern of speeding deliveries late in the year, according to industry sources and some analysts. Internally, the planemaker is provisionally aiming for more than 600 deliveries this year, several sources said.

    -> Chief Commercial Officer Christian Scherer told reporters in June that Airbus had fewer than five aircraft left without homes after month of crisis management with airlines, having reached out to customers as soon as lockdown paralysed demand.

    -> “If you have a plane in production now, the pressure to take delivery is huge. If you have a delivery in the middle of the decade, Airbus would be happy for you to release it so that it can offer that slot to someone else,” a senior financier said.

    Fake news?
    -> “Lufthansa denied, however, a media report that its chief executive Carsten Spohr had clashed by video call with his Airbus counterpart over payments for aircraft. Such matters are not typically discussed at CEO level, a spokesman said.”

    • LH had an agressive cost reduction campaign early this year, asking 20% reductions from it’s main suppliers, on existing contracts.

    • It’s said that Airbus, under Faury, has been pushing Airlines heavily to accept aircraft, which may hurt future relationship.

    • Pedro said:
      “Fake news?
      -> “Lufthansa denied, however, a media report that its chief executive Carsten Spohr had clashed by video call with his Airbus counterpart over payments for aircraft. Such matters are not typically discussed at CEO level, a spokesman said.”

      Huh?

      When the debate continues without resolution, and/or the amount is very large, it goes the the top.

      I am aware of an unresolved legal fight going to the top, the approach is that CEO’s can determine the overall impact on their organization and perhaps have a somewhat fresh set of eyes so can decide on principle.

      Perhaps 4B Pedro is speculating.

  9. “Boeing delivered 130 737 MAXes since the airplane was recertified in November. The production rate is now about 16/mo with a target of 31/mo early next year. It also returned 190 MAXes to service of the approximately 387 that had been grounded by global regulators in March 2019.”

    Confusing because of terminology.

    If you are speaking of aircraft Boeing built but did not deliver to customers they were not ‘returned to service” as they never entered service. Wikipedia says 400 ‘undelivered’ and says Boeing hoped to deliver half of the 45o ‘stockpiled’ aircraft in 2021. That makes more sense.

    Wikipedia lists 404 as Delivered, thus grounded while in customer hands, a quantity close to its claims for undelivered, also a figure that makes sense. (IOW roughly 400 sitting in Boeing’s hands and another 400 already in customer hands.) Mainland China would be a big part of the delivered but not returned to service quantity which is about half of total grounded initially.

    Clarity needed.

    .

  10. Regarding slashing 787 production rate, read in Calhoun’s presentation that was done to put priority on dealing with the undelivered airplanes.

    Makes sense.

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