Leeham News and Analysis
There's more to real news than a news release.
Pontifications: Signs point to China OK soon for Boeing deliveries, orders
By Scott Hamilton
Aug. 29, 2022, © Leeham News: The Chinese government appears on a path toward authorizing Boeing to resume deliveries to airlines by or early in the fourth quarter, China watchers tell LNA.
China hasn’t placed new orders for Boeing aircraft, with few exceptions, since then-President Donald Trump initiated a trade war with China shortly after taking office in 2017.
Nor has China taken delivery of more than single-digit numbers since 2019, following the grounding of the 737 MAX in March that year. China’s regulator, CAAC, was the first to ground the domestic MAX fleet following the second accident of the type in March 2019, five months after the first accident.
China was the last major regulator to recertify the MAX, in December 2021, following the FAA’s recertification in November 2020. But CAAC has not authorized deliveries. It appeared on the cusp of doing so when last May a China Eastern Airlines 737-800 nose-dived from cruising altitude into the ground, killing all aboard. CAAC ordered China Eastern and its affiliated airlines to ground all 737-800s, a move widely believed to be unwarranted given the circumstances of the crash that tentatively pointed to a cockpit-controlled dive. Later investigation largely confirmed this, though no accident report has been released yet.
Because of the crash, CAAC withheld authorization for Boeing to resume deliveries of the MAX. Geopolitical considerations also are believed to have played a role as tensions between the Washington and Beijing continued over the unresolved trade war, China’s straddling sides in the Russian-Ukraine War, and visits by members of the US Congress visited Taiwan. China regards Taiwan as a renegade province and objects to political visits by other countries.
Orders at Risk: Summer 2022 Snapshot
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By Vincent Valery
Introduction
Aug. 22, 2022, © Leeham News: The ink has now dried on the orders signed at the 2022 Farnborough Air Show. Boeing announced more orders than Airbus, mainly because of a sold-out A320 production line well into the future. Airbus also announced orders shortly before and after the Air Show.
Credit: Airbus
Airbus and Boeing also disclosed their second quarter of 2022 earnings and July orders and deliveries, the first post-Farnborough update. OEMs are more likely to reassess the quality of their order books before disclosing future earnings.
Airbus and Boeing have outstanding orders with airlines where there is a material probability some orders won’t translate into deliveries. Most were the result of airlines encountering financial difficulties, but some were related to contractual disputes. Boeing flags such orders as subject to an ASC 606 accounting rule adjustment.
Unlike Boeing, Airbus isn’t subject to an accounting rule like the ASC 606 adjustments. Therefore, the European OEM does not break down the orders at risk of cancellation by the program. Airbus only discloses the nominal value of its total adjusted order book in its annual report.
LNA analyzed July 2020, November 2020, August 2021, and February 2022 Airbus’ and Boeing’s order books to identify orders at risk and come up with an apples-to-apples comparison. We update this analysis with the latest order books from both OEMs. The above links explain our methodology and its differences with Boeing’s ASC 606 adjustments.
Summary
- Lingering order book cleanup for older programs;
- The Boeing-China factor;
- A healthier single-aisle Boeing order book;
- Updates on the A330neo and large twin-aisle aircraft order books;
- One aircraft variant stands out.
Boeing prepares to swap engines from MAX inventory to new production
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By Scott Hamilton
Aug. 15, 2022, © Leeham News: Boeing CEO David Calhoun says the company won’t build 737 gliders. That’s what airplanes are called as they exit final assembly without engines. The mitigation ironically comes from a circumstance that bedeviled Boeing since March 2019.
Planning is underway to take engines from the large inventory of stored 737 MAX aircraft to install on new production airplanes, LNA confirmed.
Engineless Boeing 737 MAXes in 2018. Boeing is making counterweights to hang on the new-production airplanes if CFM can’t deliver engines on time. Credit: Woody’s Images.
Boeing is producing 20-30 ship sets of counterweights, LNA is told. The counterweights are yellow blocks hung from the pylons to which engines are attached. The weights are needed to prevent the airplanes from sitting on their tails without the heavy engines installed. The counterweights will be installed on the stored airplanes when the CFM LEAP-1B engines are removed to install on new production aircraft as they roll off the final assembly line in Renton (WA).
In 2018, some MAXes rolled off the final assembly line without engines when CFM deliveries couldn’t match the production rate then.
Airbus has upward of 30 A320 gliders because CFM and Pratt & Whitney can’t deliver engines on time due to supply chain issues. Boeing, struggling to return to the 2019 737 production rate of 52/mo following the 21-month grounding of the MAX and a slow recovery from the COVID pandemic, hasn’t produced gliders yet. CFM is the exclusive engine supplier for the MAX.
The industries’ CASM trap
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By Bjorn Fehrm
Introduction
August 11, 2022, © Leeham News: The airliner world measures efficiency in CASM, Cost per Available Seat Mile, and RASM, Revenue per Available Seat Mile. An airliner with more seats then has lower CASM or RASM.
Looking at seat counts, we can see that the hottest selling single-aisle, the Airbus A321neo, is closing the gap to widebodies like Boeing’s 787-8 and Airbus’ A330-800.
So it’s CASM, and RASM should be phenomenal. Or is it? Are we comparing correctly, or are these Apples and Oranges comparisons? We use the cabin generator of our airliner performance model to understand it better.
Summary
- The measurement of economics per seat makes sense for internal airline work.
- When comparing different airliner types in the same size class or between types (single-aisle, widebody), it’s the wrong method.
HOTR: Boeing resumes 787 deliveries after long hiatus
By the Leeham News Team
Aug. 10, 2022, © Leeham News: Deliveries of the Boeing 787 are slated to resume today after a pause of nearly two years. American Airlines is set to receive a 787-8. The Federal Aviation Administration announced Monday that it approved Boeing’s plans to fix a production flaw that resulted in a paper-thin gap where certain sections of the fuselage are mated.
Rework of up to 120 787s in inventory has been underway for some time, both in Charleston (SC), where the airplane is assembled and in Everett (WA), where the former Line 1 Final Assembly Line was located. Plane spotters occasionally noted 787s being flown into Everett from stored locations.
Some estimates indicate that the 120 airplanes were sold for an average of $129m each. (The split between the 787-8, 787-9 and 787-10 is not detailed.) This places the inventory value at an estimated $15.5bn. But don’t assume this is the amount of cash that will be coming to Boeing as inventory is cleared into 2024. About 40% of the sales price is typically paid via deposits and progress payments by the time of delivery. This means that Boeing may look for an estimated $9bn in cash.
However, customer compensation for the delivery delays could reduce this some. Boeing prefers to compensate customers via discounts on future airplanes or via services and parts. How much—or how little—cash compensation is provided is known only to Boeing.
During the fourth quarter last year, Boeing took a forward loss on the 787 program of $3.46bn.
Boeing avoids strike as St. Louis Machinists OK contract
By Bryan Corliss
Aug. 3, 2022, © Leeham News: Machinists Union members working for Boeing’s St. Louis-area defense plants today ratified a three-year contract with the company.
The vote means that Boeing will avoid a strike that would have shut down production of new T-7 trainers for the U.S. Air Force and MQ-25 Stingray refueling drones for the U.S. Navy.
Members of International Association of Machinists District Lodge 837 on July 24 had rejected an earlier offer from Boeing with a 91% no vote, with 94% of members voting to go on strike Aug. 1.
That prompted Boeing to go back to the table over the weekend. It came up with a new offer that added an $8,000 ratification bonus, with the option for workers to take that in cash or as a contribution to their 401(k) retirement funds.
That, apparently, made all the difference.
Update 8-3: Contract Approved (St. Louis Machinists vote Wednesday on latest Boeing contract tweaks)
Update, Aug. 3, 2022: The IAM 837 approved the revised Boeing offer for a three year contract. No strike tonight.
By Bryan Corliss
Aug. 2, 2022, © Leeham News: Machinists Union workers at Boeing’s St. Louis-area defense plants will vote on a revised three-year contract offer from the company Wednesday.
Workers on July 24 had rejected a previous offer from the company with a 91% no vote. In addition, 94% of workers voted to strike. The strike was scheduled to start at 12:01 a.m. Monday, but after a marathon weekend bargaining session, the union side agreed to take Boeing’s latest offer to its members in today’s vote.
Negotiators from International Association of Machinists District Lodge 837 had urged their members to reject the company’s previous proposal, saying it did “not equate to a fair and equitable offer.”
As of mid-day Tuesday, the IAM 837 negotiating committee hadn’t issued a public recommendation on the latest offer. However, our read is that it’s doubtful that Boeing has improved its package enough to satisfy Machinists, who are looking for significant improvements in pay and retirement benefits after giving up major concessions in their last contract.
Jump in R&D spending at Boeing Commerical Airplanes points to renewed studies for new airplane
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By Scott Hamilton
Return of the NMA? Photo credit: Leeham News.
Aug. 1, 2022, © Leeham News: Buried in Boeing’s second quarter results released last week was a sharp jump in research and development spending.
It wasn’t just a small increase at Boeing Commercial Airplanes (BCA). Boeing spent more on research and development in the quarter and the half year. Expenses hit $1.33bn for the half-year compared with $996m a year earlier. For the quarter, expenses rose $996m vs $497m. R&D for Commercial Airplanes rose to $693m for the half and $372m for the quarter, compared with $524m and $255m, increases of 32% and 46%, respectively.
Spending is still short of the peak in 2019. But the reduced spending post-grounding of the 737 MAX and the COVID-19 pandemic was reversed in the first six months of this year.
Update 2: (Boeing modifies offer, strike called off for now) After upbeat air show and 2Q financial report, Boeing faces strike Sunday
Update, 2:45PM (PDT) July 30: Overnight negotiating resulted in a modified offer from Boeing to IAM 837, resulting in postponing the strike set to begin at 12:01 AM CDT Aug. 1. A new vote has been set for Aug. 3.
By Bryan Corliss
Analysis
UPDATE: 4 p.m. (Pacific), July 29: On Friday afternoon, a St. Louis television station reported that Boeing and Machinists Union District Lodge 837 were heading to mediation. The station quoted an IAM 837 spokesman who said a federal mediator would lead the talks. The station said Boeing has not confirmed this.
Meanwhile, the St. Louis Business Journal reported that negotiators on both sides had met with a mediator but made no progress.
Neither side has issued a statement on potential mediation.
We will update if developments warrant.
July 30, 2022, © Leeham News: Boeing’s Wednesday earnings call had some pretty big news in it: After years of red ink, Boeing now anticipates generating free cash flow.
But there’s a big potential blocker on the Defense side of the house, in the form of a looming strike with the Machinists Union workers in St. Louis.
Workers rejected a contract on July 24. Leaders of International Association of Machinists District Lodge 837 said 91% of those voting rejected Boeing’s “best and final” offer, and 94% of voters authorized a strike, which could begin at 12:01 AM Monday. The leadership did not release the vote totals.
Three plants in and near St. Louis would be affected by a walk out.
Boeing didn’t mention it in its earnings press release, and CEO Dave Calhoun didn’t mention it on the earnings call and downplayed the significance of the labor strife during a live interview with CNBC the same day.
“They do have high expectations,” Calhoun said. “We feel we have made a very strong offer.”
The union workers, however, disagree, and that could very well mean another stumble for Boeing, as it moves to bring the key new programs – the T-7A trainer for the U.S. Air Force and the MQ-25 Stingray UAV for the U.S. Navy – into full production.
Boeing ekes out positive cash flow; earnings numbers mixed; R&D spend jumps
July 27, 2022, © Leeham News: Boeing today reported that it eked out positive operating cash flow for the second quarter of $81m. Revenues his $16.68bn, down slightly from $17bn a year earlier as production and delivery delays continue to hammer the commercial division.
Boeing reported an operating profit of $774m and a net profit of $160m. This compares with $1bn and $567m respectively. Despite the lower earnings figures, the tiny positive cash flow compares with a negative cash flow of $493m last year.
For the half, Boeing reported revenues of $30.67bn vs $32.2bn, an operating loss of $395m vs an operating profit of $940m, and a net loss of 1.1bn vs a net profit of $6m.
The full press release may be obtained here.