Leeham News and Analysis
There's more to real news than a news release.
Pontifications: Analysts overlook Boeing losses for cash flow gain; what’s behind the jump in charges?
By Scott Hamilton
Oct. 31, 2022, © Leeham News: Boeing last week surprised Wall Street aerospace analysts with a huge loss instead of the expected profit for the third quarter.
But positive cash flow was the metric the analysts focused on. The loss was attributed mostly to big write-offs of five defense programs: the KC-46A, VC-25B, MQ-25, T-7A, and Commercial Crew (the Starliner) programs. Boeing wrote off $2.8bn for these programs in the quarter. The company previously wrote off $8.8bn for these programs.
The specifics: Boeing took charges of $1.2bn for the KC-46 tanker, $766m on Air Force One, $351m for the MQ-25 aircraft carrier tanker drone, $285m for the T-7 jet fighter trainer, and $195m for the Commercial Crew.
All are fixed price contracts that have come back to bite Boeing big time.
Boeing also had a loss of $643m in the quarter at Commercial Airplanes. Global Services reported a profit of $733m and Boeing Capital Corp (BCC)—the leasing unit—eked out a $23m profit.
For the nine months, Commercial Airplanes recorded a loss of $1.74bn. Defense lost $3.66bn. Services reported a profit of $2.1bn and BCC barely recorded a profit of $14m.
But cash flow was positive at $2.9bn. And this is what analysts liked. Yet there was a little smoke-and-mirrors involved in this. Boeing said the cash flow was helped by “higher commercial deliveries, favorable receipt timing, and a tax refund,” as analyst Robert Stallard of Vertical Research put it. The tax refund was $1.5bn, a huge chunk of the cash flow touted by Boeing.
Boeing R&D spending continues to rise, surpassing/matching 2020 level
By Scott Hamilton
Oct. 27, 2022, © Leeham News: The Boeing Co’s research and development spending for the nine months ending Sept. 30 is 10% higher than the same period in 2020. R&D spending for Boeing Commercial Airplanes for the current period is fractionally lower than for the nine months in 2020.
R&D spending in 2020 took a sharp dive as the global COVID-19 pandemic set in beginning in March. With the global 737 MAX fleet grounded (from March 2019) and production halted (from December 2019), CEO David Calhoun took a knife to spending as cash flow dried up.
Boeing adds 737 MAX 7 to at-risk status with MAX 10 for cancellation over FAA certification
By Scott Hamilton
Oct. 26, 2022, © Leeham News: Boeing may terminate the 737 MAX 7 program if the deadline for a cockpit warning system is not extended, blocking certification.
Boeing 737-7 MAX. Credit: Boeing.
CEO David Calhoun previously said the 737 MAX 10 program might be certified.
In a federal filing of the 10Q quarterly report today, Boeing added that the MAX 7’s future is in doubt.
“If the Aircraft Certification, Safety and Accountability Act (ACSAA) deadline is not amended [beyond Dec. 27 this year] and we otherwise fail to achieve certification, we might choose to discontinue the MAX 7 and/or MAX 10, resulting in future earnings charges and other financial impacts. We may be able to partially mitigate some of these financial impacts to the extent that customers exercise substitution rights into MAX 8 and/or MAX 9 aircraft,” Boeing wrote in its 10Q.
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.”
Summary:
- 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
Read more
Lockheed Martin expects competitive bidding for next tanker
By Byan Corliss
Oct. 25, 2022 © Leeham News: A Lockheed Martin official said the company believes the U.S. Air Force will end up seeking competing bids for the next batch of aerial refueling tankers it will buy.
When that happens, the company is confident the Air Force will pick its proposed LMXT tanker, based on the Airbus A330 airframe, for the role, said Larry Gallogly, who is Lockheed Martin’s director for the tanker campaign.
Back in 2007, the Air Force outlined a plan under which it would replace its then-existing tanker fleet in three rounds, KC-X, KC-Y and KC-Z.
KC-X, after many missteps, became the KC-46 program. The Air Force now is looking ahead to KC-Y, but with the recent steps forward with Boeing’s KC-46, some are arguing that a full-blown tanker competition isn’t necessary because USAF could just tack on additional orders to the 179 KC-46s it now plans to buy.
But during a briefing from Lockheed Martin’s offices in Alexandria, Va. today, Gallogly said he expects the Air Force will announce its criteria for the next round of tankers after the first of the year. When it does, Gallogly continued, it’s likely that the Air Force will be seeking a more-capable tanker than the one it’s buying now.
“If we take all of the stakeholders at their word that the requirements are vastly different than they were 16 years ago, that takes you down a path where a competition is more likely than not,” Gallogly said.
Summary
- Lockheed Martin teams with Airbus for proposal
- LMXT differnt from Airbus KC-330
- USAF approved KC-46 for all missions last month
“The music will stop” because aviation will miss target “green” deadlines: Boeing’s Calhoun
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By Scott Hamilton
David Calhoun. Source: Boeing.
Oct. 24, 2022, © Leeham News: Boeing CEO David Calhoun believes that the plethora of concepts for shifting to “green” aviation may be confusing policymakers.
And, he says, the pace outlined by the commercial aviation industry may contribute to the confusion.
Calhoun also said that Sustainable Aviation Fuel (SAF), while the most promising near-term technology to reduce aviation emissions, isn’t an easy solution, nor is it a complete solution.
Calhoun made his remarks last month at the US Chamber of Commerce Aerospace Summit in Washington (DC).
Pontifications: Two sentences described Boeing’s last two years
By Scott Hamilton
Oct. 24, 2022, © Leeham News: The question to Boeing CEO David Calhoun was put in levity. His response was telling.
Susanne Clark, the president of the US Chamber of Commerce, noted before last month’s Aerospace Summit that Calhoun assumed the CEO position in January 2020.
“It’s been a long 10 years,” she postulated.
“Yes, it’s been a long 20 years,” Calhoun replied.
These two sentences couldn’t describe the situation at Boeing more clearly.
Although Calhoun had been on the Board of Directors since 2009, including serving as lead director, the challenges he faced with the 737 MAX grounding were greater than he expected. Two months after becoming CEO, the COVID-19 pandemic erupted. And seven months later, deliveries of the 787 were suspended.
The MAX and 787 issues went on much longer than anyone expected. (The MAX challenges still aren’t over.) Recovery from the pandemic is going better than forecast.
The Chamber’s Aerospace Summit was an in-person event. The previous one was in March 2020.
Engine Development. Part 10. Next generation engines
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By Bjorn Fehrm
Introduction
October 20, 2022, © Leeham News: We finish our series about engine development by looking at the next-generation engines and future trends in airliner engine development.
We limit this look forward to engines that burn Jet fuel (Jet-A1 or SAF) as green propulsion solutions are a vast field and justify their own series. We will pick this up at a future date.
The Boeing 777-9, the first airliner with next-generation engines. Source: Boeing.
Summary
- The major reduction in fuel consumption and, thus, CO2 emissions will come from new engines.
- The technologies to drive fuel consumption down a further 15% are there.
Pontifications: Energy costs add to aerospace supply chain squeeze
By Scott Hamilton
Oct. 17, 2022, © Leeham News: The aerospace supply chain faces new strains due to rising energy costs, Airbus CEO Guillaume Faury said last week.
Bloomberg News reports that Faury said some suppliers are shutting down due to high costs.
“We see another thing coming, which is the consequences of energy prices skyrocketing leading to some suppliers trying to adapt, sometimes stop producing, waiting for the situation to normalize,” he said. “That’s very low in the supply chain, but it’s probably something new,” Bloomberg wrote. It was reporting on Faury’s appearance before the UK Aviation Club.
At an unrelated event last month, two top US suppliers said they continue to see financial distress in the supply chain. Some lower-tier suppliers had filed for bankruptcy and more may be expected.
Engine Development. Part 9. Gearbox or not?
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By Bjorn Fehrm
Introduction
October 13, 2022, © Leeham News: In our series, we look at the development of the latest single-aisle engines. Should these be geared? What do you gain and risk with a geared design? Is this a new development, or has it been around for a long time?
We examine the development of single-aisle engines since 2000, their fuel efficiency, and operational reliability.
Summary
- A geared design fixes some fundamental problems in a two-shaft turbofan.
- CFM proves you could just as well further develop what you have.