Feb. 21, 2023, © Leeham News: Boeing will have some bumps in the road (or maybe I should say, some turbulence) now and then, but its chief financial officer is confident the company is solidly on its way to recovery.
Recovery is daunting. There’s $51bn in total debt (more than $34.5bn in net debt), with $5.2bn coming due this year. Production of the 737 and 787 remains erratic. Deliveries are slower than hoped. Certification of the 737-7 and 737-10 has yet to be achieved. Program progress on the 777X is slow. A host of defense programs are in money-losing positions.
But orders picked up nicely for the 737 and 787. Even the 777X won 10 orders, from Air India, after a long, long drought. Debt, huge though it is, is coming down. Revenues are up at Commercial Airplanes and Global Services, though down at Defense.
Brian West, the CFO, outlined Boeing’s outlook during an appearance at a Cowen Co. investors conference last week. There was little new since Boeing held its own investors’ day on Nov. 2 and the 2022 earnings call on Jan. 26. But there are always a few nuggets to come out of these appearances.
“It was an important milestone to generate positive cash flow,” West said at the top of his discussion—highlighting the No. 1 priority of the investment community and by extension, the Boeing C-Suite. “We still feel momentum coming into this calendar year. In terms of where we’re at with recovery, we know where we’re headed.”
But, West said, there are two top priorities for this and next year in the recovery stream. “A couple of two really big, important things that have to happen. The inventory of the 737 and 787 has to unwind. We have to relieve production of all the rework.
“It’s going to get bumpy. We will have lower February deliveries, in the low 20s. Then deliveries will accelerate throughout the year,” he said. Boeing guided 400-450 MAX deliveries this year from the factory and inventory. West expects seven MAXes a month from inventory, gradually increasing to 10-12 a month. Although Spirit AeroSystems, which makes the 737 fuselages, is planning on a production rate of 42/mo by year-end, West is sticking with a top rate of 38/mo this year.
“What’s important is that the factory space is there, the tooling is there and the labor is there. Getting there is the function of the supply chain and the skilled labor force,” he said. The supply chain is still unstable but getting better.
Sales slots for the 737 are sold out through 2026, West said. The 787 sold out through 2025. As international traffic begins to recover, “we are seeing a pickup in conversations with customers. Last year, we had 200 widebody orders, the most since 2018. The trans-Atlantic is back to pre-COVID levels.” Trans-Pacific and Asia traffic is gaining momentum, he said. Boeing announced it is adding a fourth 737 production line in Everett (WA), the site of all its widebody production. The North Line, as the new one is called, has an operational target date of 2024. The 737s with unique or complicated configurations (the 737-8200 and 737-10) will be assembled there.
“We’re very fortunate to have Everett as an option. We’ve got the space and we have the skilled workforce. I won’t guess beyond 50. The fourth line will start with handling the more complicated configure airplanes and Renton will be very reliable. This bodes well for the near term and for the long term.
The day before the Cowen appearance, Boeing and Airbus won orders for 500 aircraft from Air India. Asked about what to expect for the Paris Air Show this June, West said only, “stay tuned. We really enjoyed yesterday.”
All the indicators bode well for long-term demand, West said.