Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
Boeing ekes out positive cash flow; earnings numbers mixed; R&D spend jumps
July 27, 2022, © Leeham News: Boeing today reported that it eked out positive operating cash flow for the second quarter of $81m. Revenues his $16.68bn, down slightly from $17bn a year earlier as production and delivery delays continue to hammer the commercial division.
Boeing reported an operating profit of $774m and a net profit of $160m. This compares with $1bn and $567m respectively. Despite the lower earnings figures, the tiny positive cash flow compares with a negative cash flow of $493m last year.
For the half, Boeing reported revenues of $30.67bn vs $32.2bn, an operating loss of $395m vs an operating profit of $940m, and a net loss of 1.1bn vs a net profit of $6m.
The full press release may be obtained here.
Outlook for 2022
Boeing expects to have positive free cash flow for 2022.
“While we are making meaningful progress, we have more work ahead. We will stay focused on safety, quality, and transparency, as we drive stability, improve performance, and continue to invest in our future,” said president and CEO David Calhoun in a statement.
Boeing ended the second quarter with $10bn in cash and $1.4bn in marketable securities, down from the first quarter when it had $12.3bn in cash and securities. Boeing shifted securities investments to cash during the quarter. Boeing also has $14.7bn in undrawn credit lines.
Airplane deliveries rose to 121 vs 70 a year earlier, but 787 deliveries remain stalled, awaiting approval from the FAA to resume.
Defense
Defense revenues were down year over year. The operating profit was $71m vs $958m a year earlier. For the half year, Defense revenues were down by $2.5bn and the unit reported a half-year operating loss of $858m vs a profit of $1.36bn. The losses were blamed on charges on fixed price development programs, “unfavorable performance” of some programs, and lower deliveries.
Boeing faces a strike Sunday by the IAM 837, which represents 2,500 defense workers in the St. Louis area. The union claimed Boeing was making “billions” “off the backs” of workers as one reason labor leaders recommended a vote against the Boeing contract offer. The leaders did not release vote numbers from last Sunday’s contract vote but claimed 91% voted against the contract and 94% voted in favor of a strike.
Global Services
Boeing’s Global Services unit reported an operating profit of $728m for the second quarter and $1.36bn for the half on higher revenues.
Research and Development
Boeing spent more on research and development in the quarter and the half year. Expenses hit $1.33bn for the half-year compared with $996m a year earlier. For the quarter, expenses rose $996m vs $497m. R&D for Commercial Airplanes rose to $693m for the half and $372m for the quarter, compared with $524m and $255m, increases of 32% and 46%, respectively.
Earnings call
The earnings call is at 10:30 AM Eastern time. It may be accessed here. Boeing stock was up $5 in pre-market trading.
So, BA essentially managed to eke out a 1% net operating profit. The slightest operational cost increase — e.g. rising wages — and that slim profit evaporates.
Cash is now down to $10B…not enough for any stab at a new program.
Nothing but vague fudge regarding 787 delivery resumption.
Wall Street appears to be underwhelmed by these results:
BA stock opened at $161.12, made a small climb to $162.74, and has since been on a downward slope. At the time of writing, it’s now at $153.31 — representing a decrease of 1.67% on yesterday’s close.
In contrast, the DOW and S&P indices are up today.
Still, who knows what the rest of the day will bring…particularly the earnings call…?
Boeing for a year has been on a campaign to paint the rust underneath.
How do you have positive fcf and profit, but a decline of cash of almost 3 billion?
All their creative accounting at some point comes crashing down on them
> How do you have positive fcf and profit, but a decline of cash of almost 3 billion? <
That seems like a good question to me.
Non-structural charges, tax payments, etc.
The positive results were only in the *operational* category — the various non-operational charges then come in to ruin the party.
Debt repayments
@Dukeofurl ok what about the other 2.5 billion
You’re a financial illiterate who cant even ask the right questions,
Instead of answering the question you try to deflect by personal attack!! Isn’t it against the rules??
What’s interesting is that plane delivery went up 53 percent this half, but revenue only by 3 percent. I guess the discounts are heftier than expected, close to 30 million per max indeed
Basically there are 2 instances.
First, the airlines has already finished paying 100% of payment but has yet to received the plane due to the backlog in getting the planes from the parking lot. So all these numbers were reflected in previous quarters or years but the physical goods are only delivered now.
Second type of instance would be Boeing is literally delivering free aircraft to airlines as part of the compensation for the groundings. If Hefty discount is the cause, this kind of financial situation will stay for a couple of years. I suspect Boeing isn’t earning much even for Qatar and Delta’s order. Supply chain issues holding down the production rate below what Boeing is hoping for is certainly eating up more margins to each units being produced than what is anticipated.
You may have confused sales recognition with deposit payments. There was a discussion among posters awhile ago.
This is the problem IMO. By selecting periods, variables and relative KPIs, a company can easily create perceptions. And they are extremely skilled at that.
When you put a big container behind the house and you drop in all write-offs, reservations, charges, customer compensations, debts & you spread out the required communication smartly, no one pays attention to the -$63B in the container.
If you mention on top 41.000 aircraft are needed in the next 20 years, carefully book hundreds of stored 737s, 787 and 777s as valuable inventory “soon” to be delivered, people start to feel good about the numbers.
You aren’t lying either if you leave out that you are in a fight with airworthiness authorities worldwide and the competition is flying circles around you.
Specially if your public really wants the good news, the positive cash flow façade sticks. But the container is there.
Thanks for that comment, keesje.
Whos cherry picking time periods.
Boeing has reported 2nd quarter and HY financials. They compare with same periods last year
Just like Airbus has done
The story says
‘For the half, Boeing reported revenues of $30.67bn vs $32.2bn, an operating loss of $395m vs an operating profit of $940m, and a net loss of 1.1bn vs a net profit of $6m’
Of course for some , thinking about financial results compares well to ‘a dog watching TV’
“Of course for some , thinking about financial results compares well to ‘a dog watching TV”
An interesting snarl from someone who showed us recently that he didn’t know what a “bull” was in economics…and who also doesn’t know the difference between gross debt and long-term debt…
Starting to show distinct “TW-like” tendencies…
The two previous commenters have nailed it.
There are three kinds of lies:
Lies, damned lies, and statistics.
– Mark Twain
The unethical and non compliant Boeing Company of today pretty much follows those three mantras.
Really, then who did a settlement on criminal charges
$3.9 bill is some hush money to make it go away.
https://www.justice.gov/opa/pr/airbus-agrees-pay-over-39-billion-global-penalties-resolve-foreign-bribery-and-itar-case
More recently:
“Boeing Charged with 737 Max Fraud Conspiracy and Agrees to Pay over $2.5 Billion”
https://www.justice.gov/opa/pr/boeing-charged-737-max-fraud-conspiracy-and-agrees-pay-over-25-billion
The loss of almost 400 lives!
Shows you U.S. administion’s selective justice, one set of rules for them, another for us.
The 737’s and 787’s are going to get delivered fairly quickly. The inventory of oddly produced 77x’s, well, no, but that’s a separate argument.
AA expects to take around 8 787’s this year, starting in early August, and they probably have a better idea about the process/situation on those than internet keyboard warriors. The movements of some of the 787’s also certainly indicate pre-delivery activities. Is there really an issue with Max deliveries now other than China, and some moderate drama about the 737-10 certification?
“Is there really an issue with Max deliveries now…?”
YES:
Low production rates, engine shortages, thin margins, a large inventory of whitetails that nobody seems to want, and a DOT audit.
*****
As regards AA’s “expected” 787 deliveries in August — they were also “expected” in April, and before that in November 2021, and before that…
Hadn’t AA been expecting 787 deliveries in *April* at the beginning of this years? Shrugged.
Fool me once … fool me twice .. Can’t remember how many false alarm were there.
Ring the bells: yet another chance for BA to lose staggering amounts of money!
“Pentagon Seeking Fuel-Efficient Aircraft Design”
“The Department of Defense (DoD) is seeking a blended wing body (BWB) aircraft concept that provides 30 percent greater aerodynamic efficiency than the Boeing 767 and Airbus A330.
“The DoD expects the dual-use aircraft — utilizing “projected 2030 engine technology” — to provide a 60 percent reduction in “mission fuel burn” compared to present technology and enable “increased range, loiter time, and offload capabilities.”
“The prototype’s first flight is expected in 2026.
“The Defense Innovation Unit (DIU) solicitation doesn’t specify the intended role of the aircraft, but the Boeing 767 and Airbus A330 are the basis for the KC-46 and KC-30 Multi-Role Tanker Transport, according to Air Force Magazine.
“Citing an Air Force Research Laboratory spokesperson, the outlet ruled out the aircraft for the KC-Y aerial refueling tanker modernization plan “but did not say whether it’s related to the KC-Z (plan).” ”
https://www.thedefensepost.com/2022/07/27/pentagon-fuel-efficient-aircraft-design/
This looks a lot like a lucrative R&D project to help Boeing get back on its feet paid by Uncle Sam. Suprizingly, the same design could be used for a next civil passenger aircraft. Let’s see with what NASA is comming up to help them.
These concept have been in wind tunnels for over a decade. Maybe build a flyable (scale) model? Not sure about such $.5B tankers.. They’re probably for more than fuel.
It’s good to see this post up so quickly; it should make for interesting conversation. Myself, it’s the ongoing
delays of Boeing 787 deliveries- despite “almost there!”
talk for months- that are curious, knowing how resumption could quickly help ca$hflow.
placeholder.
https://www.airbus.com/en/newsroom/press-releases/2022-07-airbus-reports-half-year-h1-2022-results
The company’s second-quarter results fell short of analysts estimates.
Adjusted loss per share: 37 cents vs an expected loss 14 cents
https://mobile.twitter.com/jonostrower/status/1552314380724756480
– Boeing anticipates 2022 deliveries to come in around the low 400s. Stored inventory … shifting into 2024
– …. suppliers have largely looked at Boeing’s production planning guidance as extremely unreliable. This goes back years. There’s a huge amount of mistrust between Boeing and its supply chain.
> suppliers have largely looked at Boeing’s production planning guidance as extremely unreliable. This goes back years. There’s a huge amount of mistrust between Boeing and its supply chain. <
Is that a quote from an article, and if so, might you have a link? Thanks.
It’s from Jon’s tweet: (full quote)
-> “The subtext of Calhoun’s frustration with supply chain readiness for higher rates, suppliers have largely looked at Boeing’s production planning guidance as extremely unreliable. This goes back years. There’s a huge amount of mistrust between Boeing and its supply chain.
Thanks for that Ostrower quote and context, Pedro.
BA is going to eat its suppliers’ lunch, by gobbling up LT service contracts and chipping away their supply contracts.
Interesting commentary from Ostrower
See the Air Current article
https://mobile.twitter.com/theaircurrent/status/1552345872960143360?cxt=HHwWgICq5ZiWhYsrAAAA
As regards MAX deliveries this year, it was said on the earnings call that the target is now 400 (as you quote above) versus a previous target of 500.
That’s a 20% drop!
(Source: CNBC Halftime Report, Phil Lebeau)
Airbus adjusts deliveries this year from 720 to 700.
400 and 500 are almost the same- a simple change of one digit.
Indeed!
You could get a job at the BA PR department 😏
That was my audition line.
FG: Fixed-price defence contracts trim another $400m from Boeing results
‘Boeing sees progress on 787 but warns on supply chain’:
“A lot of things good happened over the quarter,” said Chief Executive Dave Calhoun, who described the company as “on the verge” of garnering approval from US air safety officials on the 787, though he declined to give a precise target date..”
https://www.rfi.fr/en/business-and-tech/20220727-boeing-sees-progress-on-787-but-warns-on-supply-chain
BA seems to adhere to a very loose definition of “on the verge”…
Let’s hit that ball back: in the same vein, we can viably say that BA is “on the verge” of bankruptcy.
That company’s C-suite seem deserving of a special Alfred E. Neuman award, to me.
See CEO Calhoun’s oblivious comments further into that piece, if you haven’t.
I would really like to see signs that Boeing is finally getting it together- for the sake of their line employees, and their suppliers.
BA’s financial situation is already dramatic — to put it mildly.
Add in supply chain bottlenecks, potential strikes, rising prices, mounting wage pressure, and cooling demand — and things start to look downright bleak.
Bloomberg:
US Watchdog Confirms FAA Errors in Southwest Air Safety Checks
Dallas Morning News
Southwest Airlines stalled FAA investigation, whistleblower says
“..The Dutch Safety Board had also commissioned Dr. Dekker’s analysis of the accident, which applied an engineering discipline known as human factors. As planes have come to rely on complex computer systems, researchers and investigators have identified design and training practices that can make pilot error less likely.
Dr. Dekker, then a professor in Sweden who had investigated other serious crashes and had worked part time flying a 737, acknowledged fatal mistakes by the Turkish Airlines pilots in his 129-page study.
But he also found that Boeing bore significant responsibility.
While his study was never made public, copies circulated among some researchers and pilots. And his role in the investigation was cited in an appendix to the board’s report. He is now a professor in Australia and the Netherlands.
In the study, Dr. Dekker chastised Boeing for designing the autothrottle to rely on just one of two sensors measuring altitude. That decision, he wrote, left “a single-failure pathway in place,” raising the risk that a single error could lead to catastrophe.
Five years before the Turkish Airlines crash, Boeing was aware that a sensor malfunction could idle the engines improperly, but the company decided it wasn’t a safety concern, the Dutch investigators wrote. After receiving reports about autothrottle misfires that did not lead to accidents, >>a Boeing review board determined that if a malfunction occurred, pilots would recognize it and intervene<<.."
Does that last bit remind anyone else of later Boeing 737 "issues"?
https://www.nytimes.com/2020/01/20/business/boeing-737-accidents.html
The ‘human factors’ were the Turkish Airlines pilots ( it had 3 in the cockpit for this flight including a check captain) didnt follow the airlines SOP.
The ATC even allowing a type of landing called slam dunk than came down on the glide slope rather then the only type permitted which was to meet the glide slope from below. A slam dunk is higher workload.
The pilots missed electronic display warnings ( similar to on EICAS) as they were still doing checklists long after they should have been completed ( and if not a go around done)
You cant call it ‘human factors’ when its blatant disregard of procedures.
Its called the stupid allowing the stupidity.
Once again 3 pilots in cockpit!
Then as the plane descended further, a landing gear warning went off, because the system believed the plane to be near the ground without its landing gear down. ….. The crew ignored the warning and continued the approach.’
‘pilots were distracted working through the landing checklist (which they should have already completed’
‘ low airspeed eventually triggered a flashing amber box around the airspeed value on the electronic display.’
https://admiralcloudberg.medium.com/test-article-the-crash-of-turkish-airlines-flight-1951-440326b3bd9a
Let’s see: should I believe Duke On The Internet and his anonymous ‘Admiral Cloudberg’ friend; or Dr. Dekker, the Dutch Safety Board, and the New York Times?
tough call..
Southwest safety issues and the Turkish crash are off topic. Get back to commenting on the post, not tangential issues.
Hamilton
Does anyone have a reliable source that compares R&D spending by Airbus and Boeing for the last five or ten years?
Also, a comparison of money spent
on stock buybacks and executive comepensation by the same entities.
TIA.
@Bill7: Richard Aboulafia has tracked R&D spending at Airbus v Boeing for years.
I’m not aware of comparisons on the other points.
Thank you, Scott.
Dukeofurl said, on July 27, 2022:
“You’re a financial illiterate who cant [sic] even ask the right questions, [sic] ”
Dukeofurl said, onJuly 27, 2022:
“You were asking how Boeing can pay of [sic] its debt?
It was a stupid question”
Are these types of comments going to be allowed here?
Even more disturbing — in a reply to @keesje above, @DoU wrote:
“Of course for some , thinking about financial results compares well to ‘a dog watching TV’ ”
Scott recently gave a stern warning about reader comment rules, but that seems to have fallen upon deaf ears in @DoU’s case.
It’s puzzling why he seemingly feels the need to resort to increasingly belligerent and belittling syntax when addressing other commenters — simply because they don’t subscribe to his particular view.
Good article on Investing.com:
“Boeing: Management, Execution And Valuation Still Look Like Roadblocks”
https://www.investing.com/analysis/boeing-management-execution-and-valuation-still-look-like-roadblocks-200627777
Particularly interesting:
“It’s difficult to escape the impression that there are structural problems here – problems that were papered over by strong demand pre-pandemic and a lack of competition outside of Airbus. Both of those benefits may change.
“Travel spending is robust now, but there’s clearly pent-up demand from the pandemic and a shift of consumer dollars away from goods to experiences. That demand will exhaust itself at some point — while a recession potentially looms.
“Meanwhile, China’s state-owned COMAC (Commercial Aircraft Corp of China) is nearing certification of its narrow-body C919. The C919 looks like the first step in a challenge to the Boeing-Airbus duopoly.”
I wonder who articles like this one are written for: ‘Boeing Recovery Is Stronger Than It Appears Because Of Write-Downs’:
“..Boeing has 120 787s in inventory. It is not clear how long it will take or how much it will cost to modify these units.
Boeing anticipates that the FAA will finally authorize shipments of the 787. They said the same thing last year and that this has been an incredible torturous process. However, they are convinced from their discussions that at an unknown date in the third quarter shipments will begin. These shipments are critical to returning the company to stable profitability. Even with the beginning of shipments, there will still be roughly $2 billion of abnormal production costs before the program returns to normality. The 787 is a highly profitable program and it will be strongly profitable in the future..”
Note that last sentence. There’s more like that in tharr.. fun reading.
https://seekingalpha.com/article/4526838-boeing-recovery-is-stronger-than-it-appears-because-of-write-downs
Somebuddy needs to tell BCA that mo’betta
PR is not going to get the job done:
Show us, don’t tell us, because your credibility is all but shot.
Setting aside my perhaps wacky alt-hypothesis, for the moment.) B7
Yes, I read that article earlier today, and scratched my head.
From the outset: the title is misleading, because surprise writedowns have become *structural* at BA. We’ve reached a stage where you know in advance that there’s going to be a writedown — you just have to wonder what amount and what program.
Next up: the 787 program is a (heavy) net-loss program. Going forward, we can still expect sub-optimal earnings from this program, due to low monthly production rates (for new frames), re-work costs (for frames out in the parking lot), and potential costs of modifying the production lines. There will also be ongoing compensation payments due to late delivery. If — after all of that — there’s a positive amount left over, it won’t be very large.
No disagreement here with what you’ve said. My shock is with the brazenness
of the easily-verifiable falsehoods, like the sentence I pointed to re the 787 program […]
Signed,
Bewildered by BS, in Central California.
I wonder how much program accounting will depress Boeing going forward
Nope. BA would write down its sunk cost periodically, as *one-off items* and everyone turns their head and look away.
Well, he is the author of “Top Pair Trade Thesis: Buy Boeing, Short Airbus”
https://seekingalpha.com/article/4521833-top-pair-trade-thesis-buy-boeing-short-airbus?source=all_articles_title
BA has a new Communications Chief.
Interestingly, his resumé includes a lot of political posts in D.C. — not that that played any role in his appointment, of course 😏
“Before Disney, Besanceney served the U.S. government in key roles, including as deputy chief of staff to Secretary of State Condoleezza Rice at the U.S. State Department, and assistant secretary for Public Affairs at the U.S. Homeland Security Department. In the early 2000’s, Besanceney served in the White House under President George W. Bush, including two years as Special Assistant to the President and Deputy White House Communications Director for Planning. Previously, he served as communications director for then-U.S. Rep. Rob Portman and as a public relations and government relations consultant.”
https://www.prnewswire.com/news-releases/boeing-names-brian-besanceney-as-new-communications-chief-301595649.html
> BA has a new Communications Chief. <
So *that's* what's been missing at Boeing: Mo' betta, *well-connected* PR, chop-chop! No need for no new stinkin' airplane..
😉
Adding: Boeing’s new PR honcho will be a superb fit with their move to D.C. Maybe/likely that was all worked out beforehand, though.
BA has received preliminary clearance to resume 787 deliveries”
“(Bloomberg) — Boeing Co. received preliminary US regulatory clearance to restart deliveries of its 787 Dreamliner aircraft, paving the way for the end to a drought that drained cash and dented the planemaker’s reputation for quality.”
“The FAA agreement is a milestone for the company, but it won’t immediately resume sales. Boeing must still make required fixes and get FAA inspectors to approve each aircraft, the people said, asking not to be identified as the information hasn’t been publicly announced. While timing of delivery resumptions remains unclear, the company is aiming to begin in the week of Aug. 8, one of the people said.”
http://www.bnnbloomberg.ca/boeing-gets-faa-clearance-to-restart-787-dreamliner-delivery-1.1799142
Seattle Times
Feb 11, 2022
WA aerospace companies hopeful — and nervous — about Boeing’s woes, labor shortage
-> Most worrying for its suppliers, Boeing’s production rates remain very low and the company has not provided them clear guidance as to when 787 deliveries will resume and when 737 MAX production will ramp up.
An executive at one mid-size Boeing supplier of metal parts, who asked not to be named to preserve the relationship with its major customer, said “that makes it difficult to create long-term agreements to procure raw materials and to forecast the budget for raw materials, equipment and labor.”
-> Ron Epstein, an industry analyst with Bank of America, offered that suppliers now dependent on Boeing have to consider switching production to growth areas such as satellites.
“Is it a choice to maybe pivot to supply that industry?” Epstein asked. “If you have large customers today that are unreliable and won’t tell you what production rates they build at, maybe that’s a choice.”
-> Meanwhile, the MAX is ramping up, with production getting closer to a target of 31 jets per month, but with *no definitive information about production rates beyond that*.
For companies that make parts for the 787 or the 737 MAX, the uncertainty is a real problem.
-> “I still think Boeing could come up with a killer product that really does great,” Aboulafia said. But Boeing, hunkering down to fix its problems and low on cash, won’t commit to launch one.
The company’s *spending on research and development fell by 30% in 2020 and by an additional 20% last year*, Aboulafia told the conference.
It’s been 18 years since Boeing last launched an all-new airliner design. Such launches decide the future shape of the industry and of the region’s airplane manufacturing base.
“Something has to happen this year,” Aboulafia said. “If it doesn’t, then the market-share situation just gets much worse and you can expect this to be a 70/30 market (split in favor of Airbus) in say a dozen years. It then just becomes a question of time before someone replaces Boeing in 20 or 30 years, or whatever it takes.”
And Aboulafia added another worry: The outflow of machinist skills and engineering talent in the downsizing of the past two years will be difficult to reverse in the post-pandemic labor market.
-> When Boeing does launch a new airplane, Aboulafia said the demand and funding for aerospace and software engineers outside the commercial airliner business *“fundamentally jeopardizes any chance Boeing has to resurrect its design teams.”* “Boeing really needs to rethink its relationship with its engineers and its people because otherwise they’re going to be outcompeted by so many other different sources of demand for talent,” he said.
Fitting quotes from Aboulafia, I think- thanks for them.
Mr. Magoo- sorry, I mean CEO Calhoun- was recently
quoted as not being worried about Boeing’s steadily declining market share, because he’s “got a backlog”.
Ok, dude. 😉
Link:
https://www.seattletimes.com/business/boeing-aerospace/wa-aerospace-companies-hopeful-and-nervous-about-boeings-woes-labor-shortage/
@Bill7
BCA R&D in absolute amount and as a percentage of sales in last 27 years or so.
https://aviationweek.com/aerospace/aircraft-propulsion/opinion-why-next-year-will-be-crucial-boeing
Thanks very much for that link, Pedro.