Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- RTX Q1 2025 Earnings: GTF Talk Takes A Back Seat To Tariffs April 22, 2025
- Tariffs Tumult Takes Over GE Aerospace Q1 2025 Earnings Call April 22, 2025
- Boeing reports mixed results of latest employee survey, but middle management and officers remain key obstacles April 22, 2025
- Hopes for 1Q financial progress turns into bumpy ride for Boeing April 21, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 18. April 18, 2025
Trouble with the Boeing backlog?
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By the Leeham News Team
Aug. 8, 2024, © Leeham News: On July 31, 2024, Boeing (BA) released the financial results of the second quarter, in what was widely expected to be a dismal reporting period. The company had been facing pressures from all sides of the spectrum, including certification, production, supply chain and financial, to mention a few.
The third quarter now brings fresh challenges as BA will have to deal with an increasingly militant union membership (and contract negotiations), who want to claw back concessions previously granted to the company.
Indeed, the 2Q2024 results were less than stellar, with an ever-increasing cash burn and a decreasing amount of commercial aircraft delivered. The silver lining to the very dark cloud which hung over the release, was news that the embattled reign of CEO Dave Calhoun was coming to an end, and newly minted Kelly Ortberg of Rockwell Collins fame, would replace him on August 8.
Lost in the eruption of euphoria which saw Boeing shares rise 2% on the day, despite losses that surpassed the previous quarters figures, was news that all was not well with the Boeing Commercial Aircraft (BCA) backlog.
Typically, when previous results were poor, optimists pointed to the duopoly Boeing shares with Airbus and the multi-billion-dollar backlog of orders it holds. “Airbus production is maxed out, so what are airlines going to do for new aircraft?”, was the common refrain.
The Boeing Liabilities Problem: A decade to resolve
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By the Leeham News Team
Analysis
Aug. 1, 2024, © Leeham News: During the second quarter, Boeing (BA) CFO Brian West admitted that the first half of 2024 will be a cash burn period, given the problems over at Boeing Commercial Aircraft (BCA) with suppliers, deliveries and certification issues. Estimates varied and West was non-committal in his comments. However, he alluded to a repeat of the performance in Q1, which had a Free Cash Flow (FCF) burn rate of ($3.9bn) and an operating cash flow usage of ($3.4bn).
The second quarter results released on July 31, 2024, underlined just how badly things have deteriorated. FCF for the period was ($4.3bn) and operating cash flow was ($3.9bn).
BA attempted to mitigate the drop in cash by borrowing an additional $10bn in April, which bumped the Long-Term Debt (LTD) back up to previous highs and guaranteed that Interest Expense will be a troubling item for them, moving forward. In Q1/2024 Boeing paid out $569m in debt servicing costs with almost $47bn in LTD sitting on their balance sheet. With the new obligations, consolidated debt now sits at $57.9bn.
For comparison, at the end of 2020 Boeing reported (in millions of dollars):
To what extent can the A321XLR replace the Boeing 757, Part 4
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By Bjorn Fehrm
August 1, 2024, © Leeham News: We are comparing the Airbus a321XLR to the Boeing 757 to understand to what extent it can replace the 757 on the longer routes it operates for major airlines like United, American, and Delta.
We have examined the aircraft’s development and operational history, their Apples-to-Apples capacity and range, and their operational costs for a typical domestic configuration. Now, we equip the A321XLR with a long-range, lie-flat cabin and look at what long-range routes it can fly in this configuration.
Summary:
- The A321LR/XLR can fly up to 10-hour routes in a long-range configuration, flying from mid-USA to mid-Europe.
- With its passenger capacity, range, and operational economics, it covers most of what Boeing set out to cover in its MOM and later NMA studies.
Boeing names new CEO; losses widen, negative cash flow again. Update 1, reaction.
July 31, 2024, © Leeham News: The Boeing Co. today named Kelly Ortberg president and CEO, effective Aug. 8. He succeeds David Calhoun, who retires then. Calhoun was named president and CEO of Boeing in January 2020.
Boeing also announced 2Q2024 and 1H2024 earnings. The company reported 15% lower revenues for the second quarter compared with 2023, a net loss of $1.4bn vs a net loss of $149m last year, and negative operating cash flow of $3.9bn vs positive cash flow of $2.875bn in 2Q2023.
For the half, revenues were $33.4bn vs $37.67bn last year. The net loss was $1.794bn vs a loss of $574m. There was a negative operating cash for the first half this year of $7.285bn vs a positive flow of $2.557bn last year.
Ortberg is 64 years old, much older than previous CEOs when named. He’s been in aerospace for 35 years, most recently as CEO of Rockwell Collins. He led the integration of Rockwell’s merger with United Technologies (now RTX), retiring in 2021. Ortberg began his career as an engineer with Texas Instruments and served as a program manager during his ascent up the corporate ladder.
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Boeing, Embraer differ on the future of upgauging
By Judson Rollins
Introduction
July 30, 2024, © Leeham News: Embraer’s new 20-year Market Outlook, released during the Farnborough Air Show, forecasted the demand for jets with more than 150 seats for the first time. This comes as market observers speculate the Brazilian jet maker is mulling a move into aircraft larger than its current flagship E2 family.
However, the Brazilian jet maker delivered temperate commentary on the future of upgauging, citing one-time developments it believes are unlikely to repeat. It said, “The market environment that led to [an] increase in average aircraft size will not be the same in the future. Consequently, the growth trend likely will not continue.”
For instance, a typical two-class Boeing 737-800 Layout of Passenger Accommodations (LOPA) in the mid-2000s comprised approximately 150 seats. By the late 2010s, this shifted to 160-166 seats. A similar Airbus A320 LOPA went from 140 to 150 seats.
Source: Embraer Market Outlook (data from Sabre).
Will the pre-COVID upgauging trend continue, and what are its implications for future aircraft selection? Boeing and Embraer have decidedly different views, and the latter’s view will drive its decision whether to enter the market for 150+ seaters.
Summary
- Boeing says upgauging will continue, driven equally by cabin densification and aircraft size selection.
- Embraer believes upgauging is largely over.
- Both OEMs’ views have key flaws.
- The upshot: “Bigger” doesn’t always equate to “more profitable.”
Boeing Estimates: How accurate and clear are the predictions?
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By the Leeham News Team
Analysis
July 29, 2024, © Leeham News: Annual projections for the upcoming year are an important piece of information released to the world at large for any publicly traded corporation, on what can be expected for the near and extended future.
Boeing (BA) reports its 2Q2024 earnings this Wednesday. An update of its guidance may be forthcoming as Boeing continues to work through additional costs following the Jan. 5 accident involving a 737-9 MAX with Alaska Airlines.
Boeing relies heavily on the use of estimates when filing its annual report and this information is crucial to investors when considering whether to invest, hold, sell or short stock in the company. Not only are estimates used in its financial reporting system, generally known as Program Accounting, but each year BA puts out an expected value of revenue to be generated in the future.
This prognostication is based on converting a percentage of the backlog for the following year and for a total period of four years to come. The 2023 projection is as follows:
“Our total backlog includes contracts that we and our customers are committed to perform. The value in backlog represents the estimated transaction prices on performance obligations to our customers for which work remains to be performed. Backlog is converted into revenue, primarily based on the cost incurred at delivery and acceptance of products, depending on the applicable revenue recognition model. Our backlog at December 31, 2023 was $520,195 [million]. We expect approximately 16% to be converted to revenue through 2024 and approximately 62% through 2027, with the remainder thereafter,” Boeing wrote.
There is also a caveat:
“There is significant uncertainty regarding the timing of when the backlog will convert into revenue due to timing of 737 and 787 deliveries from inventory and timing of entry into service of the 777X, 737-7 and/or 737-10,” Boeing writes in its 2023 annual report.
Farnborough, Day 4: Airbus comes from behind to win order contest
July 25, 2024, © Leeham News: Airbus came from behind today with a big order from flyNAS, a Saudi Arabian low cost carrier, for 75 A320neo family members and its first widebody order, for 15 A330-900s.
The announcement is a Memorandum of Understanding.
Airbus ends the show with 139 orders and commitments. Boeing ends the show with 118 orders and commitments.
ATR announced its only order for the show yesterday, for four ATR-72s from Air Tahiti.
De Havilland Canada ended the show with 22 orders and commitments for the Twin Otter and Certified Refurbished Dash 8-400s.
Embraer didn’t announce any commercial orders, but added nine C-390s to its order book.
New Boeing plea deal filed with court
By Scott Hamilton
July 25, 2024, © Leeham News: The new, second plea agreement between Boeing and the US Department of Justice (DOJ) has been filed with the US federal court in Northern Texas. Boeing agreed to plead guilty to criminal charges. The DOJ proposes a criminal penalty of $243.6m and requires Boeing to spend $455m on internal safety protocols.
The criminal penalty matches the amount in the first plea agreement of January 2021. Under the terms of that agreement, Boeing had three years to shape up, or the DOJ could pursue criminal charges. The three-year monitoring period was due to expire two days after the Jan. 5, 2024, door plug blowout of an Alaska Airlines Boeing 737-9 MAX on climb out from the Portland (OR) airport. This incident occurred at 16,000 ft. Nobody died but there were minor injuries.
The airplane was damaged throughout the cabin and into the cockpit with the sudden depressurization. Boeing bought the airplane back from the airline.
The 2021 fine and the proposed current fine have been roundly criticized as inadequate.
Farnborough, Day 2: Boeing dominates again
July 23, 2024, © Leeham News: Boeing dominating Day 2 of the Farnborough Air Show with a new, direct order for 20 737-8s from lessor Macquarie AirFinance, and a follow-on order from Qatar Airways for 20 777-9s.
Airbus announced a new order for seven A330-900s from Virgin Atlantic Airways and firmed up a previously announced order from Japan Air Lines for seven A321neos and 20 A350-900s.
Airbus, Pratt & Whitney, and Cebu Pacific Airlines of The Philippines celebrated a Memorandum of Understanding for an order of up to 152 Airbuses announced on July 2. This celebration is not in LNA’s table below.
De Havilland Canada announced orders for 11 DHC-6 Twin Otters.
Farnborough, Day 1: Boeing jumps to orders lead; De Havilland puts new life into the Dash 8-400
July 22, 2024, © Leeham News: Boeing was the clear winner in the orders announcements today at the Farnborough Air Show.
The beleaguered company announced orders, options, and commitments for 78 aircraft (see chart). Rival Airbus announced a Memorandum of Understanding for just five airplanes.
Tiny De Havilland of Canada announced firm orders and commitments for 11 “Certified Refurbished” Dash 8-400s.
The Certified Refurbishment Program is a multi-step process to rework used Dash 8-400s “to keep the fleet flying.” DHC terminated production of new -400s during the COVID pandemic when the old Bombardier factory at Downsview, Toronto, was closed. The airport there is being redeveloped. DHC is building a new plant in Calgary in Western Canada. It’s unclear if production of new -400s will resume. When the factory is complete.
“DHC has actively been acquiring aircraft in the marketplace and has begun upgrading these aircraft for delivery to customers looking to expand their fleets or become Dash 8 customers for the first time,” the company said in a statement.
DHC says refurbishments include:
- Aircraft configuration to match the customer’s existing fleet
- Completion of overdue maintenance, integration of Airworthiness Directives, and Service Bulletin upgrades
- Airframe life extensions through our ESP (Extended Service Plan) to extend the lives of Dash 8-100/200/300 to 120,000 cycles, or the ESP+ which can take the Dash 8-100 to 160,000 cycles
- Freighter conversions, including the introduction of the new Dash 8-400 Large Cargo Door and Quick Change between cargo and passenger missions
- Avionics upgrades
DHC has acquired 28 -400s for the program so far.