Jan. 25, 2023, © Leeham News: The Boeing Co. recorded a net loss in 4Q022 and for the full year while reporting positive cash flow. There were no one-time charges, the first time in many quarters—a key metric some Wall Street analysts were watching for. Long-term debt declined by 10% as current debt increased. Negative stock equity increased. Cash and marketable securities increased slightly.
The full press release is here.
CEO Dave Calhoun said challenges remain to achieve production stability and within the supply chain.
“This will be another important year for us as we look to steadily increase our production rates, further improve performance, progress in our development programs and deliver on our commitments,” Calhoun said in a message to employees.
Initial reaction to the results was negative. The free cash flow was in line with expectations, but the profit and loss for the corporation and the divisions were below expectation. The stock price fell in pre-opening trading.
Robert Stallard of Vertical Research wrote:
P&L still a mess, FCF in line – Revenues of $20bn were up 35% YoY, but 7% below our forecast. All three major divisions missed our estimates, with the largest variance being in the Commercial Aircraft division. BCA also lost money in the quarter (again), with a negative margin of -6.8%. Boeing noted that the 737 production rate “is stabilizing” at 31/month, while the 787 “continues at a low production rate”. The Defense division was at least positive this quarter with a 1.8% margin, though it saw the “continued operational impact of labor instability and supply chain disruption.” As noted above, FCF was in line with our forecast, and Boeing was able to reduce its net debt by ~$3bn sequentially, leaving a year-end balance of ~$40bn.
Credit Suisse wrote:
Bottom Line: We view this as a somewhat negative-leaning report. Positives include FCF coming in ahead of Street ($3.1b vs. guide $2.5b, Street $2.9b, CSe $3.0b) and reaffirmation of 2023 commercial delivery and FCF guidance. Downside is that both of these elements were expected, whereas Q4 P&L results were disappointing, with EBIT missing across the segments. That said, FCF matters most and Q4 FCF outperformance and reiteration of ’23 FCF target of $3-5b will likely protect against downside.
On CNBC, Calhoun said Boeing nevertheless feels “very good” about the quarter despite the earnings miss. Deliveries exceeded expectations, he said. Financial margins will bounce around this year as Boeing works to deliver 737s and 787s from inventory. He says long-term growth and Boeing is competing for orders for delivery by the end of the decade.
The industry is concerned about supply chain constraints, Calhoun said. In the US, Calhoun pointed to its sales success vis-à-vis Airbus and competitive elsewhere in the world, except in China, where Boeing is still frozen out. The 737 MAX just returned to service in China with a handful of flights by China Southern. There were 97 MAXes in service in China when the regulator, CAAC, grounded the airplane in March 2019. CAAC is the last major regulator to authorize a return to service. Calhoun said Boeing has about 100 MAXes in storage that were produced during the grounding.
During the earnings call, Calhoun announced a pause in remarketing the 138 737 MAXes that are in inventory since 2019 that were ordered by Chinese airlines. Beijing refused to authorize the delivery of these airplanes for COVID policy and geopolitical reasons. The first of the 97 MAXes that were in service in China when CAAC grounded the fleet returned to service this month. About 60 flights are scheduled this month and about 260 next month.
Calhoun said the focus today is returning airplanes in China to service. There’s a reason to be optimistic about clearance to delivery from inventory, but Boeing won’t predict the resumption date. Boeing today is only “partially” remarketing the Chinese airplanes. “We’re on pause with that until we understand what China wants to do,” he said.
Separately, Calhoun said there are essentially three major requirements before Boeing proceeds with a new commercial airplane program. One is truss wing development. Boeing has worked on this concept for years. Last week, NASA granted a contract to Boeing to build a demonstrator out of a converted MD-80/90. Calhoun said that the design must be put through tests before the design can be incorporated into a new airplane. He doubts it will apply to a Middle of the Market aircraft or a widebody airplane but said it can apply to a single-aisle aircraft.
LNA revealed in November that Boeing’s commercial product development was working on a truss wing design, one of three then under research and development.
The second prerequisite is digital design for modeling the concepts, for production, and for servicing. Calhoun said Boeing is “cutting its teeth” on this in its defense programs. Maturity is required before application on the commercial side.
Finally, propulsion used to drive new airplane designs. Calhoun believes propulsion now will be a contributor. The truss wing will open options for a bigger engine and the position on the wing. Although he didn’t say so, this is an allusion to the Open Fan engine being developed by GR, Safran, and CFM in the form of the Open Rise engine. The industry needs 25% to 30% better economics for a 50-year airplane program and Calhoun says these prerequisites are needed to get there.