Leeham News and Analysis
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Leeham News and Analysis
- A350-1000 or 777-9? Part 3 April 25, 2024
- Boeing CEO promises company is turning around…again April 24, 2024
- Solid start for stand-alone GE Aerospace despite cuts to LEAP output April 23, 2024
- SPEEA, Boeing at impasse over safety program, union says April 23, 2024
- Better transparency needed on Boeing’s 1Q earnings call April 22, 2024
Airbus charges and write-offs since 1999: more than €33bn
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By Scott Hamilton
April 8, 2024, © Leeham News: The A400M is Airbus’s biggest financial albatross when it comes to taking charges and write-offs, an analysis shows.
LNA last week reported Boeing’s long history of charges and write-offs that arguably hurt shareholder value in a company that’s placed this metric ahead of all others since the 1997 merger with McDonnell Douglas Corp. (MDC). Boeing has written off or taken charges of more than $73bn since 1996, the last year before the merger.
Airbus’ public records go back to 1999. Since then, the company wrote off more than €33bn (about $35bn using today’s exchange rate). This is about half of Boeing’s $70bn from 1999 through 2023.
The A400M military transport has been a financial thorn in Airbus’ side since inception. More than €10.5bn has been written off. Airbus’ other financial albatross, the A380, saw write-offs of €3.7bn.
Airbus’ infamous bribery scandal resulted in $4.2bn in European and US fines. Of this, $500m was paid to the US Justice Department for violating ITAR rules, which govern technology transfer to restricted governments such as China. (Notably, Boeing paid a criminal penalty fine of just $244m to Justice in connection with the two 737 MAX MCAS crashes in 2018 and 2019 in which 346 people died.)
The A350 program resulted in charges and write-offs totaling €2.57bn.
Airbus purchased Bombardier’s C Series for $1 for 50.1% control of the program. Airbus completed this purchase in 2018, taking a €2.6bn charge the same year for the purchase (and has invested billions of euros since then).
Below are two charts detailing the charges and write-offs. The first is by year and the second is by category.
Related Article
Boeing took +$73bn in charges since 1996
Airbus charges and write-offs by year
Airbus charges and write-offs by category
Airbus’ A350-1000 or Boeing’s 777-9?
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By Bjorn Fehrm
April 4, 2024, © Leeham News: Korean Air confirmed an order for 33 Airbus A350 in the week, 27 of which are the larger A350-1000. The order is significant on two accounts:
First, 27 A350-1000 and only 6 A350-900, where analysts have for years asked why the -1000 isn’t selling.
Secondly, for a carrier that has a rather 50-50 fleet of Airbus and Boeing planes, its large widebody was the Boeing 777-300ER, whereof it has 27 out of 37 Boeing 777 in total. Korean Air now chooses the A350-1000 to replace the 777-300ER. Why not the 777-9?
Was this a question of availability (the 777-9 should have been delivered in 2020 but has had several delays; the present plan says 2025), or was there a technical-economic reason for Korean Air’s decision? We examine the characteristics of the two planes to find the answers.
Summary:
- The Boeing 777-300ER was an exceptionally successful stretch of the original 777-200. The 777-9 is the sequel to the 777-300ER.
- The market did not like the original A350-1000. Therefore, the present -1000 is a reconfigured aircraft compared to the original variant.
Boeing wrote off, took charges in excess of $70bn since McDonnell Douglas merger
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By Scott Hamilton
April 1, 2024, © Leeham News: The Boeing Co. wrote off or took forward loss charges of more than $70bn since the 1997 merger with McDonnell Douglas Corp. (MDC). That’s when most legacy Boeing employees and many observers view the inflection point when Boeing became focused on shareholder value vs the engineering legacy that once defined the company.
LNA has tracked Boeing’s charges and write-offs for years. We’ve also tracked Airbus’ performance since 1999 financial reporting. From then through 2023, Airbus took charges and forward losses of more than €33bn. At today’s exchange rate, this is about $35bn. During the same period, Boeing’s figure was more than $70bn, twice that of Airbus.
From 1997 through 2019, when Boeing suspended stock buybacks due to the first 737 MAX crisis, Boeing spent more than $60bn in stock buybacks to boost shareholder value, according to an analysis for LNA.
For a company focused for decades on shareholder value, the write-offs and charges is a lot of money out the door.
A detailed analysis reveals a surprising detail. More than half of Boeing’s charges and write-offs come from Boeing Commercial Airplanes–$44.66bn. More than $22bn was incurred since 2020, when the MAX crisis and the COVID-19 pandemic were in full swing.
In the charts below, LNA breaks down the charges and write-offs under each chief executive officer beginning with Phil Condit, the CEO who engineered the merger with MDC. Unsurprisingly, most of the charges came under current CEO David Calhoun and his predecessor, Dennis Muilenburg because of the MAX and the pandemic. Fixed price defense contracts also were major contributors. The KC-46A refueling tanker and Air Force One lead the way.
Bjorn’ s Corner: Engine development. Part 1. Introduction
March 29, 2024, ©. Leeham News: We finished our article series about New Aircraft Technologies last week. It dealt with the different new technologies that a next-generation airliner could use to increase efficiency and by it environmental emissions.
An area that we touched upon but didn’t dig deeper into was engine development. When airframe development historically decided how long a new generation of aircraft took to develop, it gradually changed to engine development being the more calendar-time-consuming and riskier development for the last generations. This article series will discuss why and what can be done about it.
Figure 1. CFM RISE, a new engine development for the next generation of airliners. Source: CFM.
When does a larger airliner pay off? Part 4
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By Bjorn Fehrm
March 28, 2024, © Leeham News: We are doing an article series about what drove the cross-over from Airbus A319 to A320 and then to A321. We analyzed the change from A319/A320ceo to neo last week and discussed why the neo shift for the A319 meant if stopped selling.
Now, we study the change from A321ceo to A321neo and what caused the acceleration of growth of A321 sales and deliveries as it was upgraded to neo.
Summary:
- The increase in sales and delivery of the A321 when it went from ceo to neo has less to do with improved operating economics than other factors.
- One of these factors was it filled the MOM (Middle Of the Market) gap that Boeing identified 10 years ago.
Select Boeing performance under David Calhoun
David Calhoun, president and CEO of The Boeing Co.
March 26, 2024, (c) Leeham News: For more than a quarter of a century, Boeing’s Board of Directors focused on stock price and shareholder value as the top priority for the company’s performance.
Jim McNerney was CEO from 2005-2015. The stock price peaked at about $149 during his tenure, never reaching the $200 per share goal allegedly set by the Board.
Dennis Muilenburg followed McNerney. The stock price peaked at about $422 under his leadership. Even after the second 737 MAX accident on March 10, 2019, and its global grounding three days later, the stock price remained about $320. Muilenburg was fired in December 2019 and David Calhoun assumed office the next month. Three months later, the COVID-19 pandemic erupted. Boeing’s stock price plummeted, along with the rest of the stock market for the next two years.
By Nov. 2, 2022, market recovery–and Boeing’s–was such that the company held its first analyst-investors day since 2018. During the event, Calhoun announced that Boeing would not “introduce” a new airplane until the middle of the next decade (ie, around 2035). Analysts loved it–stock shot up in the following week.
But Calhoun failed to right Boeing’s ship. Production, delivery delays, big write-offs, losses at the commercial and defense units, and finally safety concerns at commercial dominated his tenure to date.
On March 25, Boeing announced Calhoun will retire by the end of 2024. Chairman Larry Kellner will not stand for reelection to the Board. The CEO of Boeing Commercial Airplanes, Stan Deal, retired effective immediately. Investors initially boosted Boeing’s stock price on the news, before falling back to the pre-announcement level.
How did Calhoun do during his tenure to date? Below are two charts: one reviews the stock price; the other reviews the write-offs and charges.
Update: Calhoun to retire, Deal out, Pope in, Kellner leaving, Mollenkopf new chair at Boeing
By Scott Hamilton
Analysis
David Calhoun
March 25, 2024, © Leeham News: The changes at The Boeing Co. and at Boeing Commercial Airplanes today speak to the depth of the crisis at the company following Jan. 5’s accident on Alaska Airlines Flight 1282. But it also speaks to the thin bench for executive ranks at the corporate and division levels.
President and CEO David Calhoun will step down at the end of the year. No successor was named. Board chairman Larry Kellner will not stand for reelection at the annual shareholders meeting. Board Member Steve Mollenkopf was named non-executive chairman. Stan Deal, the CEO of Boeing Commercial Airplanes, is out, effective today. Stephanie Pope, who was named EVP and COO of The Boeing Co. in December, takes over from Deal as CEO of Commercial Airplanes.
Pope’s move drew immediate rebuke from a Wall Street executive. Pope “has absolutely no qualifications to hold the job of head of BCA,” the executive wrote LNA in an email. Pope’s another MBA finance executive without production or product development experience. Her job before being named COO was CEO of Boeing Global Services. She followed Deal, who left BGS to become CEO of Boeing Commercial Airplanes.
Related Article
Boards are invested in the CEOs until they’re not
Boeing’s thin bench was outlined in the related article above. The leading personalities are detailed in this article.
Breaking News: Calhoun to retire, Deal out, Pope in, Kellner leaving, Mollenkopf new chair at Boeing
Boeing press release; LNA take to follow.
Boeing Announces Board and Management Changes
- Dave Calhoun announces intent to step down as CEO at the end of 2024; Calhoun will continue to lead Boeing through year-end
- Independent Board Chair Larry Kellner announces his decision not to stand for re-election at annual meeting; Steve Mollenkopf appointed new chair
- Stan Deal to retire; Stephanie Pope named Commercial Airplanes CEO
ARLINGTON, Va., March 25, 2024 — Boeing [NYSE: BA] President and CEO Dave Calhoun today announced his decision to step down as CEO at the end of 2024, and he will continue to lead Boeing through the year to complete the critical work underway to stabilize and position the company for the future.
Board Chair Larry Kellner has informed the board that he does not intend to stand for re-election at the upcoming Annual Shareholder meeting. The board has elected Steve Mollenkopf to succeed Kellner as independent board chair. In this role, Mollenkopf will lead the board’s process of selecting Boeing’s next CEO.
In addition to these changes, Stan Deal, Boeing Commercial Airplanes President and CEO, will retire from the company and Stephanie Pope has been appointed to lead BCA, effective today.
Exclusive: IAM to seek Boeing Board seat
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By Scott Hamilton
Analysis
Jon Holden, president of the IAM 751 union that assembles Boeing’s airplanes in the greater Seattle area. Credit: IAM 751.
March 25, 2024, © Leeham News: Boeing’s largest union, the IAM 751, will seek a seat on the Board of Directors in its contract negotiations that began on March 8.
The union assembles Boeing’s airplanes in the Renton and Everett (WA) factories.
LNA wrote in January 2020, when David Calhoun became CEO of The Boeing Co., that labor representation was needed on a Board of Directors that was filled with politicians, defense and finance people—but none versed in safety or even commercial aviation production. Commercial aviation was Boeing’s largest profit center for decades before the 2018-19 737 MAX crisis began.
The day Calhoun assumed his position on Jan. 13, 2020, LNA published a list of things facing the new CEO. Among them was a need to reconstitute the Board. Included in this was a suggestion that members from the IAM and Boeing’s engineering and technician union, SPEEA, be appointed (among other specific ideas).
About half the Board has changed since then, resolving some but not all of the issues raised—but neither the IAM nor SPEEA have representation on the Board.
Related Articles
- Boeing Board needs a major shake up (Jan. 13, 2020)
- Culture change needed at Boeing; labor talks could lead the way (Jan. 29, 2024)
- Boeing labor contract is opportunity for overdue culture change (Seattle Times, March 15, 2024)
On Jan. 29 of this year, LNA opined that the forthcoming labor contract negotiations with the IAM 751 was a good opportunity to begin changing the culture at Boeing. The following March 15, The Seattle Times editorialized the same theme (also citing our report in the process).
The administrator of the Federal Aviation Administration, Mike Whitaker, slammed Boeing’s culture in a March 19 interview with NBC Nightly News.
“There are issues around the safety culture in Boeing. Their priorities have been on production and not on safety and quality. So, what we really are focused on now is shifting that focus from production to safety and quality,” Whitaker told news anchor Lester Holt.
“If something requires us to cease production, we will do that:” FAA
By the Leeham News Team
March 13, 2024, © Leeham News: The Federal Aviation Administration (FAA) is considering whether to suspend the Production Certificate of Boeing Commercial Airplanes (BCA) if it’s not satisfied changes to its safety culture are sufficient, LNA has learned.
FAA Administrator Michael Whitaker. Credit: FAA
It’s the “nuclear option” LNA has written about on previous occasions following the Jan. 5 in-flight accident/explosive decompression of a Boeing 737-9 MAX operated by Alaska Airlines. Already under heightened scrutiny by the FAA, Boeing took yet another in a series of safety blows when a special panel of experts appointed by the FAA to independently review Boeing’s safety culture issued a scathing report on Feb. 26.
The FAA levied fines—and suspended some of them—for previous safety violations 36 times, according to a tracking website. And despite pledges and actions taken to improve safety following the 2018-2019 MAX crisis, Boeing still has fallen short.
Now, with an intensive FAA audit of the 737 production line, the FAA yet again found lapses. The FAA on Feb. 29 gave Boeing 90 days to come up with an actionable plan and shape up. It did not say what would happen if Boeing either fails to produce an acceptable plan or fails to implement it satisfactorily.
And, the National Transportation Safety Board (NTSB) chair complained Boeing is withholding information in the investigation into the Alaska Airlines MAX 9 accident.
The ultimate option is to suspend the Production Certificate that authorizes Boeing to build commercially-based airliners. Such a move would have huge political and economic implications, however.
Related Stories
- Boeing’s safety improvements need more work
- Safety study finds flaws with Boeing’s safety culture
- Boeing violated previous ODA, SMS agreements with FAA
- Boeing faces enormous scrutiny: Secretary of Transportation
- FAA Boeing audit finds dozens of violations: NY Times