UPDATE: Calhoun upbeat on cash flow despite fifth consecutive quarterly loss

By Bryan Corliss

Oct. 26, 2022, (c) Leeham News: The Boeing Co. posted a loss from operations of nearly $2.8 billion for the third quarter, citing losses on fixed-price defense development programs that offset an overall 4% growth in revenues.

The consensus of Wall Street analysts earlier this week was that Boeing would announce profits of 13 cents a share and would break a streak of four consecutive losing quarters. Instead, Boeing posted a loss of $5.49 a share.

However, in a conference call with stock analysts later in the morning, Calhoun was upbeat, emphasizing Boeing’s positive operating cash flow of nearly $3.2 billion for the quarter.

“This quarter was a big one for us,” he said. “We hit a marker … to generate positive cash flow.”

Boeing booked losses of roughly $1.95 billion on two defense programs, CFO Brian West said: KC-46 tankers and new Air Force One presidential transports. Both are fixed-price contracts for commercial jet conversions that forced Boeing to eat any cost overruns.

“We aren’t embarrassed by them,” Calhoun said. “They are what they are.”

But in an interview with CNBC’s Phillip LeBeau Wednesday, Calhoun said Boeing will not do fixed-price defense contracts in the future. “That is not our intent.”

  • BCA: 737 and 787 deliveries resume; engines in short supply
    BDS: ‘Labor instability’ hurts key programs
    Calhoun: Boeing ‘supports China’ but is re-marketing planes
BCA deliveries and revenues increase

Boeing reported revenues of $15.96 billion for the quarter, up 4% from the same quarter last year.

Boeing Commercial Airplanes delivered 112 planes in the quarter, which was up 32% from last year. BCA revenues jumped 40%, to $6.26 billion. The increases were driven by the resumption of 787 deliveries and higher 737 deliveries, Boeing said. However, the commercial unit lost $643 million and had a negative operating margin of 10.3%.

Calhoun said demand for new airplanes is strong in most markets globally, and West noted that Boeing had received orders for all of its commercial product lines in the third quarter, including widebodies. Boeing has active campaigns for widebody jets with a number of airlines, Calhoun said.

However, supply chain shortages are keeping Boeing from increasing production rates.

Engines are the biggest challenge, the executives said. CFM and GE Aviation both are struggling with their own supply chains; the problem is a shortage of high-skilled labor, particularly at companies that do metal casting, which is a skill that requires time to master.

Boeing said 787 production is currently at an unspecified “low” rate with “an expected graduate return to five per month over time.” The executives said that widebody production rates overall will climb in coming quarters, and said they expect the first 777-9 will be delivered in 2025.

Boeing has 115 completed 787s in inventory now, and expects “most of these airplanes to be delivered within the next two years, ” depending on the amount of rework each needs, West said.

Boeing also intends to work its way through its backlog of completed 737s now in storage, delivering between eight and 10 a month, the executives said. At that rate, most will be delivered by the end of 2024, with “some moving into 2025,” according to West.

Boeing was producing 14 787s a month, prior to the pandemic.

Shortly after the Boeing earnings release, Alaska Airlines announced it was exercising options for 52 737 MAX jets from Boeing, for delivery between 2024 and 2027. Alaska now has confirmed orders for 146 MAX. The airline also said it had secured options on another 105 of the planes through 2030.

Calhoun said the company is confident that it will be granted an extension on its year-end deadline for certifying the 737-7 and 737-10 MAX models. Development on the two programs is “progressing well” and Boeing is working closely with the Federal Aviation Administration, he said.

“I’m confident we can get an extension to that deadline,” he told analysts. “This is the safe answer. … We remain, not just hopeful, but confident.”

BDS: Labor instability, supply chain woes

On the defense side, revenue fell by 20% to $5.31 billion, compared to the same quarter last year. Boeing had reported a positive operating margin of 6.6% for the quarter in 2021; that collapsed to a negative 53% margin in this year’s third quarter.

Losses were recorded on many of Boeing’s high-profile defense and space programs, including KC-46 tankers, Air Force One, T-7 trainers and the Boeing Starliner commercial crew space capsule.

But the biggest losses were on the tanker and Air Force One programs.

West said “labor stability” was a major issue in both cases.

“We can hire, but it’s getting the workforce trained and up to speed,” he said. Complicating issues is the need to hire workers with specific security clearances, particularly for Air Force One, he added.

Supply chain problems are also a problem on Boeing’s defense side.

In his interview on CNBC, Calhoun described it as “a rough and tough supply chain world with a lot of pauses, a lot of interruptions,” and he said that Boeing had to acknowledge that in the near term, “it’s not going to get better; we’re going to accept the world as it is. That’s what the charge reflects.”

LeBeau challenged Calhoun on the deal Boeing had struck with President Trump to provide the new presidential transports. “Was Air Force One a mistake?”

Well, yes, the CEO admitted. “It turns out the critics were right. We didn’t get enough price. That’s fairly obvious to all of us.”

“The biggest mistake,” he continued, “was the fixed-price nature of it.” A number of agencies have input on what features must be incorporated on the planes, which means Boeing should have negotiated a cost-plus contract, Calhoun explained.

Boeing will complete both the tanker and Air Force One contracts and “we’ll be proud of those products.”

But Boeing won’t do fixed-price contracts again, he said.

In the analyst call, Calhoun said Boeing has hired 10,000 workers companywide this year and is investing in programs to quickly train them. It’s not as challenging finding software engineers right now, he added; slowdowns in hiring in the tech industry have deepened the pool of available workers with those skills.

Boeing also is doing what it can to support suppliers, Calhoun added, in some cases, seconding its own workers to help out.

Boeing looking for new buyers for Chinese jets

Boeing has 138 737s in storage, holding them for Chinese customers who aren’t taking them.

That’s 51% of all the completed 737s now on the ground, one analyst noted.

Calhoun said that Boeing wants to do business with Chinese airlines.

“It’s my hope that these two big economies get together and endorse free trade again,” he said on the analyst call.

But, he added, “it’s really hard for me to find signals that things are going to change in China and move in our direction.”

Given that, Boeing is “going to take steps to de-risk” its exposure to China, Calhoun said. “We have begun and we’re going to continue to re-market these airplanes.”

There is high demand for aircraft now, as air travel numbers rebound, Calhoun said. As a result, if Chinese airlines can’t or won’t take the planes, there are other airlines that will. “It’s not a little market and there are a lot of ways we can take advantage of it.”

Calhoun told CNBC that Boeing will be more cautious with future deals in China.

“‘We’d love to continue to do business with China, but we’re not going to put our investors at risk,” he said. “We will support China, we will support our customers in China, but we’re not going to take the kinds of investor risk that we probably had in the last year or two.”

57 Comments on “UPDATE: Calhoun upbeat on cash flow despite fifth consecutive quarterly loss

  1. Time for BA shareholders to split the company and secure the profitable defense business and giving the civil business a fresh start under chapter 11.

    • YES … I suggested this path 2 months after Ethiopian 737 MAX crashed

    • Calhoun’s job was to stop the bleeding, and if not able too then BK or a split may happen. The DoD loathes more consolidation in the defense industry.

  2. “However, the commercial unit lost $643 million, and had a negative operating margin of 10.3%.”

    This despite deliveries of 90 MAXs and 9 787s in Q3, with total BCA deliveries of 112. In Q3 2021, there were 85 deliveries, but only a marginally larger loss ($693M). See table 4 in the earnings results.

    Proof that margins on present deliveries are very thin.

  3. No surprise there. The profit margins are not just thin, they are negative. Looking at the numbers, the B767 and B777 are definitely profitable or at least not operating with losses. The 9 B787 that was delivered would not have cost more than more than $50m of losses each, so the only aircraft left are the B737max. Assuming that each B787 are indeed delivered at a loss of $50M, that would account for $450M of operating losses. That also means that the B737max deliveries has to account for the remaining losses. That would worked out to be about an average of about $2M losses for each of the B737max delivered in Q3. (The loss for the B737max would be more if the assumptions for the B787 losses are less.)

  4. Yep-the Mcdummy -welch bakedbook accounting methods to the fore.
    “we lose money on every Max, but make it up by volume “

  5. Looks like the positive cashflow was just a fluke:

    “Operating cash flow improved to $3.2 billion in the quarter, reflecting higher commercial deliveries, favorable receipt timing, and a tax refund (Table 2).”

    – “Favorable receipt timing”: BA’s usual creative juggling with payment dates. There’ll probably be lots of pre-delivery deposits in there, together with deferred payments to creditors (e.g. to suppliers).
    – “Tax refund”: more fortuitous timing.

    Aa regards debt:
    Total consolidated debt (table 3) is unchanged at $57.2B. Add in accounts payable minus accounts receivable and total debt goes up to $64B.

    • Advances and progress billings 52,066

      This is the balance at the end of Q2


      Advances and progress billings 53,177

      This is from the Q3 release


      They received $1.111 billion extra in deposits and PDP’s from customers during the quarter – which would explain a lot.

      They also grabbed a bit from here:

      Short-term and other investments 1,358 – Q2

      Short-term and other investments 763 – Q3

      That’s another $595 million taken from the piggy bank.

      Over $1.7 billion, right there…


      Interestingly – this also happened:

      Other current assets, net 2,086 – Q2

      Other current assets, net 3,073 – Q3

      It went up by almost a billion – any idea what this is? What the heck is their ‘Other current Assets”?

      • Other current assets:

        “Other current assets (OCA) is a category of things of value that a company owns, benefits from, or uses to generate income that can be converted into cash within one business cycle.

        “They are referred to as “other” because they are uncommon or insignificant, unlike typical current asset items such as cash, securities, accounts receivable, inventory, and prepaid expenses.”


        Another fudge term that can be creatively used by BA 😏

        Perhaps a “sale agreed” (but not yet executed) on some real estate?

        • I know what the textbook definition is 🙂

          It isn’t tooling, because they throw that into inventory (funny how they say that ” (it) can be converted into cash within one business cycle.” – ‘can’ being the operative word, as stuff has sat there for years…), but what would increase their assets by a billion, over the quarter?

          • I know you know the definition — you’re an accounting buff 😎

            I posted the definition for the general benefit of other readers — @TW, for example 😏

          • My apologies then. Well thought out…

            Accounting Buff is a strong term…I try to run away from it as fast and as far as I can.

          • Mhh, that would be an interesting candidate.
            Or something to do with the ex-China whitetails?

          • @Bryce

            Just keep those in inventory, with the rest of them – no?

            Inventory dropped marginally ~$150 million. Mind you, we’ve no idea what was added to Inventory during the quarter.

        • Property, plant and equipment went from $10,617 to $10,508, but with an increase in depreciation from $20,971 to 21,208 – so I don’t think so… I don’t think you can carry the asset on your books and increase the current asset at the same time.

          (Side note – they depreciated their PPE by $237 million over the quarter, but the asset value only dropped by $109 million – so it looks like they actually acquired more of something they dumped into PPE)

          If I’m reading this correctly…

          • What about a tax refund that has been greenlighted, but not yet paid back by Uncle Sam?
            That wouldn’t be accounts receivable — where would you book it?

          • @Bryce

            I think that would be in Deferred income taxes, an asset account:

            What Is a Deferred Tax Asset? A deferred tax asset is an item on a company’s balance sheet that reduces its taxable income in the future. Such a line item asset can be found when a business overpays its taxes. This money will eventually be returned to the business in the form of tax relief.

      • Also take a look at accrued liability, which increased from to 17,752 M to 21,217M. This also explained a lot.

  6. Not directly related to the BA’s earnings, but this article contains some very interesting tidbits of info on spare parts supply chain issues and the horrendous costs of putting stored aircraft back into service.

    “Air chaos set to continue for another 18 months as under-fire Qantas boss Alan Joyce now blames Boeing for YOUR travel woes – and he reveals the airline was 11 weeks from going broke”



    “‘Aircraft windshelds are now a worldwide restricted item,’ he said. ‘We used to be able to replace a windshield in 12 hours, maybe 24.

    ‘It took Jetstar nearly seven days to source last month.'”


    “He then referenced the exhaustive process in recovering Qantas’s A380s in the Mojave Desert in California, which involved replacing the parts, retraining the pilots and completely restoring the 12 aircraft that were stranded.

    “‘Waking up a single A380 is 4500 hours, or two months’ work,’ he said. ‘It requires 10 engineers to work for two months in the desert.

    “‘It’s 22 wheels and 16 brakes require replacing, it’s oxygen cylinders, fire extinguishers, wi-fi, all of it requires replacing. All of this just to get one aircraft out of the desert.'”


    So, now we know the horrendous costs/effort that have to be shouldered by BA every time it wants to deliver one of the many whitetails in the parking lot / desert. Of course, LNA already told us just a few weeks ago that the costs of re-furbing a whitetail were about equal to the costs to manufacture it.

    No wonder deliveries of inventory aren’t generating any (significant) earnings.

    • @Bryce: You wrote: “LNA already told us just a few weeks ago that the costs of re-furbing a whitetail were about equal to the costs to manufacture it.”

      That’s not quite correct. What Calhoun said it takes as long to wake up a stored airplane as it does to assemble it. This is different than the “cost.”

      • @ Scott
        Very sorry for the confusion.

        One way or another, the LNA/Calhoun info, together with this Joyce info, reveals the de-mothballing procedure to be a resource-eating nightmare.

        • Sure – but think about it;

          If the cost to re-furb a white tail was the same as making it from scratch – heck, give me the new one off the line, every time.

          IIRC (and I rec’d this from Scott himself, when I got into a spat about refurbing an aircraft on an investing website…our friend Dherin) the cost of taking an aircraft and changing it from one airline to another, was in the $5-7 million range (narrow body).

          Scott was told this by a lessor and at the end of the day, who would know better? The guys who take back aircraft and ship them off to other customers on the regular…

          • Agreed the statement did not begin to pass the smell test but if you want to sensationalize it, of course it is embellished. Classic Alaska fishing story MO. Yes sir ree, them thar 300 lb Kings are legendary up here.

          • @ Frank

            All true.

            Although, in this case, we’re talking about de-mothballing in addition to re-furb. In the case of stored 787s, we’re also talking about “open heart surgery” to perform the necessary repairs. If you throw in insurance and rent (e.g. in Victorville) during storage, things become very pricey.

            What a mess.

          • @ TW
            Caffeine deficiency + a cold + a busy day = incidental cortical fog 🤕
            My original statement is still true as regards *labor* costs.

            The underlying gist of my comment still stands: delivering inventory is costing BA so much money that it’s severely eroding margins…

    • Thousands of engineer hour (we’re talking in months) just to “wake-up” a long term stored jet, before the airplane is able to fly to a shop for weeks if not months of maintenance work.

      -> Boeing trims guidance for how many 737 MAX airplanes it expects to deliver this year to approx. 375

      -> After $1.2B in charges on KC-46 in Q3, Boeing is now over $6B in overruns on the program.

  7. >The consensus of Wall Street analysts earlier this week was that Boeing would announce profits of 13 cents a share and would break a streak of four consecutive losing quarters. Instead, Boeing posted a loss of $5.49 a share.<

    How can Wall Street be so wrong when so many of us non experts that stay tuned to what’s going on at Boeing and Airbus predicted this loss.
    Wonder what they’re smoking.

    A better question is why are the same old BOD and executive corps keeping their jobs with this poor performance?

    Going to be interesting to see Airbus qtr results.

    • To be fair: one-off writedowns are always difficult to predict — even for industry insiders. That having been said, most analysts do seem to have a woefully inadequate grasp of the (technical aspects of the) true extent and nature of the problems at BA.

      Incidentally, I read earlier this week that the analyst consensus was for a *loss* of 8 cents per share. For example:


      Airbus’ results will probably be disappointing by AB standards — though stellar by BA standards. I expect that supply-chain-based reduced production rates will have hollowed out profits.

    • Totally agree!
      These WS analysts should read LEEHAM NEWS
      Parroting management hot air is not the best way to estimate future profits.
      these guys are awfully well paid and are too lazy to work seriously on fundamentals.
      Just one additional point: nobody mentionned the deferred 787 costs!
      Reworking the 115 frames will cost fortunes and wipe out any potential profit.
      Will any LEEHAM reader imagine that future sales will be very profitable?
      the 787 needs to be modernized and BOEING is just unable to do it in the coming years.
      It is obvious that these 14$bn will never be recovered.
      Expect a biggish depreciation sooner or later

      • Remember how analysts — and some commenters here — were telling us recently that BA’s inventory was a goldmine waiting to be tapped?

        That’s working out well 😏

    • Take any of those analysts’ predictions with a grain of salt; who’s to say what their stake is in the game. If you own stock in a company, are you going to run it down and scare the great unwashed?

      I bet if we sent Bryce a cheque for $100,000 and he had a following of a few hundred thousand investors – he could find something nice to say about them.

      “Hey – Boeing has a very, very nice logo. I like it”


      “Do you know how important the B-17 and the B-29 was to the war effort?”


      “Could anyone have imagined how long the B-52 was in service?”


      “Did you see the video of the test pilot Tex rolling a 707 during a flight show? Now there’s an aircraft.”

      • Well, there are probably commenters here who think I’m being paid by Airbus 😅

    • -> Analysts at agency Partners estimates the company’s various fixed price defense contracts have already resulted in of $8.8 billion of charges.

      -> Vertical Research analyst Rob Stallard said the company’s *poor track record in forecasting defense charges raised questions over “whatever outlook the company provides”*. “Boeing management continues to state that the company is in turn around mode, but we’d say that the arc of recovery remains extremely elongated,” said Stallard, adding the company was lurching from one problem to the next in “whack-a-mole” fashion.

      -> Boeing has now fallen short of Wall Street earnings estimates for a fifth quarter in a row.

      -> Year-to-date operating cash flow was a generation of $55 million, and free cash flow usage year-to-date was $841 million

    • because experts have like an hour of research for each company to do and we have a whole swarm of nerds that can sift through details and discuss it ad nauseaum.

  8. A fixed price contract is not a fixed price contract if items are added. So the AF1 Calhoun argument is absurd (funny as well, he was part of the board but of course did not know what was going on).

    I can’t prove it but Calhoun looks to be lying again. Any contract will have an adder in it for anything not covered by the contract (and specific language as to what the added costs structure is).

    I worked on so called fixed price contracts. They always included a provision for adding costs that were not part of the base contract.

  9. So the 10-Q filing wasn’t on the BA website this morning, but it’s up now. Some details:


    Max & 787 Inventory:

    “Commercial aircraft programs inventory includes approximately 270 737 MAX aircraft and 115 787 aircraft at September 30, 2022 as compared with 335 737 MAX aircraft and 110 787 aircraft at December 31, 2021.”


    On the 787 grounding costs:

    We expensed abnormal production costs of $595 during the six months ended June 30, 2022. (last quarter)

    We expensed abnormal production costs of $925 during the nine months ended September 30, 2022. (this quarter)

    (So the 787 grounding cost them $330 million this quarter.)

    On the 737 Max:

    At June 30, 2022 and December 31, 2021, commercial aircraft programs inventory included the following amounts related to the 737 program:
    deferred production costs of $1,594 and $1,296 and unamortized tooling and other non-recurring costs of $649 and $617. (last quarter)

    At September 30, 2022 and December 31, 2021, commercial aircraft programs inventory included the following amounts related to the 737
    program: deferred production costs of $2,387 and $1,296 and unamortized tooling and other non-recurring costs of $645 and $617.

    (so the amount added into the Deferred Production Balance on the Max program increased by $793 million, over the third quarter. They still haven’t got it under control, have they?)

  10. The mess gets worse:

    “(Bloomberg) — Boeing Co. tumbled after paring its annual forecast for deliveries of its 737 narrowbody jets and disclosing that it may discontinue the smallest and largest “Max” versions of the workhorse should those models fail to win government safety approvals.

    “In a securities filing, Boeing said it may discontinue the 737 Max-7 and -10 variants if a looming deadline is not extended and “we otherwise fail to achieve certification.” That echoed comments earlier this year by Chief Executive Officer Dave Calhoun.

    “The disclosure came after Chief Financial Officer Brian West gave a lowered delivery target for 737 aircraft, saying the planemaker now expects to hand over 375 of the jetliners this year. Boeing had previously targeted deliveries of close to 500 before lowering the goal in July to the “low 400s.”

    “The manufacturer signaled that it won’t be speeding up work on the cash-cow aircraft anytime soon, even as demand surges for fuel-efficient workhorse jets favored by budget airlines. Boeing expects the 737 monthly production rate to stay in the low 30s through much of next year, but output should rise sharply during the closing months, West said on a conference call to discuss quarterly earnings.

    “The shares erased early gains to slide 9.2% at 2:46 p.m. in New York, the worst performance in the Dow Jones Industrial Average and the steepest one-day slide since June 13. The stock has lost about 34% of its value this year”


    • Shock, what a shock for those perma bulls who ignore/refuse to see the writings on the wall

      SA “analysts” would jump in and say time for long-term buy ….

      • BA actually went up to $150 today, from 145 – before tumbling down $134.

      • Leeham stories have previously noted the engine supply is now a major issue….and all along the supply chain for dozens of other industries too.

        They are raiding the engines off those in storage !
        Do try to keep up

        • How many MAX did BA deliver last quarter?? How many of them were pulled from inventory???
          AB OTOH successfully reduced its “gliders” after June. Even analyst tried to interrogate Dave on what’s happening.
          GE delivered say 350 or so LEAP IIRC How many of those went to BA?? WHY???


          • -> Douglas Harned (Analysts)

            I wanted to go back to the MAX rate and engines because on the earlier, I think Seth’s question earlier talked about LEAPs out there, and we’re looking at GE just reported 347 LEAP deliveries for the quarter. We are seeing Airbus finally, and they’ve struggled. But finally, that — the LEAP-powered A320 seemed to be coming through. When I look at — if we look at the numbers and you had sort of that target production rate of 31 a month and look at what Airbus is doing, it seems like CFM is finally getting there. And then on top of it, we know that well over 100 LEAPs were delivered ahead of production before. So I’m just trying to understand how the engines can be the main constraint here. Is there another issue that’s also slowing down the delivery rate or the — I’m sorry, the production rate?

        • Has AB revised its delivery target downward?
          BA has already done it twice this year.

          Nice trying to pin this on the engine makers, but this seems to be a uniquely BA problem.

        • @Duke

          “They are raiding the engines off those in storage !”


          Engines are owned by the purchasers of the aircraft – unless it’s a power by the hour agreement. You cannot just take an engine off an aircraft and slap it on another. Engine deals are negotiated directly with the engine OEMs, by the airline or lessor.

          Boeing cannot just ‘raid the aircraft in storage for engines’.

          Do try to keep up

  11. Interesting article on Forbes:

    “Boeing Is Haunted By Years Of Aggressive Bidding On Defense Contracts”


    Of note:
    “Chief among them is the long-troubled KC-46A aerial refueling tanker, which Boeing booked a $1.2 billion reach-forward loss on in the third quarter, bringing its total charges on the program since 2014 to $6.6 billion. Boeing won the U.S. Air Force contract to develop and produce the tanker in 2011 with a lowball bid to beat out Airbus that was motivated by a desire to keep its European arch-competitor from establishing production facilities in the U.S., says Loren Thompson, an industry consultant and chief operating officer at the Lexington Institute. The victory proved Pyrrhic, as Boeing has faced years of delays on the tanker and struggled to fix a faulty vision system that allows operators to guide the refueling boom to connect with aircraft, while Airbus ended up establishing a factory in Alabama where it’s assembling A320 and A220 passenger planes.”

  12. BA off to a sluggish start to Q4, with only 23 MAX deliveries so far.
    Some interesting whitetails / ex-China in the mix, e.g.
    – LN 7692: ex-Hainan, now United.
    – LN 7797 and LN7765: ex-Norwegian, now Swoop (Canada).
    – LN 6448: ex-Lion, now Batik (5.2 years old!).
    – LN 7596: ex-Eastar, now Akasa.
    – LN 7672, 7762, 8112, 8115, 8138 and 8355: ex-Blue, now LOT (via ALC).

    (at least) 11 whitetails out of 23 deliveries implies only 12 new ones off the line.


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