Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Airbus 1Q2024 results: Airbus CEO: “A350 in-service experience drives positive reputation and orders” April 25, 2024
- 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
Skeptics about Boeing’s 737 production rate
By Scott Hamilton
Feb. 5, 2024, © Leeham News: The Federal Aviation Administration froze Boeing’s production rate of the 737 MAX at its current level.
But just what is this rate?
Boeing says it’s 38 airplane per month. Last year, it was common knowledge that Boeing struggled to consistently maintain a rate of 31/mo. Supply chain issues and voluntary “pauses” by Boeing during final assembly impacted the rate. LNA used the latter number to illustrate how many scheduled 737 deliveries will be affected by the FAA’s freeze. Hundreds of MAXes contracted for delivery will be delayed this year and next, and likely beyond, depending on how long the freeze remains in place.
But there was plenty of skepticism about Boeing’s announced rate cap of 38 per month expressed at last week’s Aviation Week suppliers conference in California.
Boeing’s orders and deferred production costs: a deeper look
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By Judson Rollins
Introduction
Feb. 5, 2023, © Leeham News: After last week’s release of the 2023 annual report for Boeing, we undertake our annual analysis of at-risk deals on the OEM’s books.
This year, we also look at Boeing’s deferred production costs in light of the well-documented commercial aircraft production issues. During the company’s earnings call, Boeing CEO David Calhoun and CFO Brian West discussed plans to close its “shadow factories” or rework facilities for the 737 MAX and 787. Calhoun said, “In our shadow factories, we put more hours into those airplanes than we do to produce [them] in the first place.”
These growing rework costs appear to be classified as deferred production costs to keep them from affecting Boeing’s announced profits. We explain below.
Summary
- Program accounting hides ballooning program costs.
- War and geopolitical tensions increase regional risks.
- Certification delays to the 737-7 and -10 significantly increase Boeing’s MAX order risk.
- The 787 order book is relatively healthy despite geopolitical and customer risks.
- 777 & 777X orders are weighed down by geopolitical issues and a soft cargo market.
Bjorn’ s Corner: New aircraft technologies. Part 47. MSG-3 Maintenance
By Bjorn Fehrm
February 2, 2024, ©. Leeham News: We are discussing the different phases of a new airliner program. After covering the Design and Production, we now look at the Operational phase of a new airliner family.
For the operational phase, the airplane must pass scrutiny for Continued Airworthiness. The biggest item in a regulator’s Instructions for Continued Airworthiness is the required Maintenance program to keep an airliner airworthy. We started last week with how maintenance went from ad-hoc to a Hard Timed maintenance program in the late 1950s and early 1960s.
Figure 1. The maintenance manual for the Boeing 747. Source: Boeing.
Re-engining the Boeing 767, Part 4
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By Bjorn Fehrm
February 1, 2024, © Leeham News: We have been looking at a re-engine of the 767, a move that Boeing is considering to avoid a production stop after 2027. The present 767 engines don’t pass emission regulations introduced by the FAA, EASA, and other regulators for production and delivery beyond 2027.
We used our Aircraft Performance and Cost model to look at the economics of the original 767 Freighter versus a re-engined one before Christmas. Now, we install a passenger long-range cabin and look at the per-passenger mile economics of a re-engined 767-300ER versus the original version.
Summary:
- New, more environmentally friendly engines would give the 767-passenger version better fuel economics.
- The higher the engine maintenance costs of the new engines make the Cash Operating Costs difference between the existing 767-300ER and the new version small.
Boeing records loss in 2023, but better than expected results; no guidance for 2024
By Dan Catchpole
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Jan. 31, 2024 © Leeham News: Boeing posted a $5.8B loss in 2023, a substantial improvement over the previous year’s $11B loss. Boeing Commercial Airplanes even posted a $41M profit in the fourth quarter–the first profitable quarter since the beginning of 2019.
However, any progress made last year was erased on Jan. 5, when a door plug blew out on a two-month-old 737-9 MAX at 16,000 feet over Portland. An empty passenger seat was ripped, but nobody died and physical injuries were light on Alaska Airlines Flight 1282.
In an earnings report conference call with financial analysts, Boeing CEO David Calhoun said definitively that the accident was Boeing’s fault and that steps are being taken to ensure it never happens again.
Calhoun’s statements echoed similar declarations he made after taking over in 2019 as chief executive amid the MAX crisis following two fatal crashes.
Those crashes put the 737 program under global scrutiny.
“I’m still trying to get my head around how we got here,” Bank of America financial analyst Ron Epstein said during the call. After the two crashes, “wasn’t the 737 line, like the most scrutinized production line in the world? So, what happened to get to where we got today?”
Summary
- Boeing withdraws exemption request for 737-7
- Vague guidance for 2024
- More mea culpas
FCF: The Double-Edged Sword (an accounting primer)
By the Leeham News Team
Analysis
Jan. 30, 2024, © Leeham News: Boeing reports its year-end 2023 earnings tomorrow. Historically, Free Cash Flow (FCF) is a key metric officers like to promote, and aerospace analysts focus on.
Before the 2019 grounding of the 737 MAX, Boeing returned 100% of FCF to shareholders via stock buybacks and dividends. Both returns were suspended by the end of 2019. Boeing set a goal in November 2022 of $10bn in FCF by 2025/2026, with the implication that shareholders will begin seeing a return then.
Free Cash Flow is generally understood to be the cash that flows into a company, less the cash outflows to pay for Operations and Capital Expenditures (Capex). It is the money that the company has available to repay its creditors or pay dividends and repurchase stock. It is also used to determine the financial health of an entity.
In the financial community, they are the buzzwords that investors love to hear.
Why is this relevant, especially for Boeing?
Culture change needed at Boeing; labor contract talks begin in March and could lead the way
A Leeham News Editorial
Jan. 29, 2024, © Leeham News: If Boeing is to emerge from its latest crisis unscathed, it will need to commit to a culture change. That’s the consensus of industry watchers, and it’s one that we whole-heartedly endorse.
CEO Dave Calhoun will have a chance to show his commitment to that change starting in March, when Boeing Commercial Airplanes top management sits down with the bargaining team for its largest touch-labor union, IAM District 751.
For 20 years, Boeing has prosecuted a scorched-earth fight against its unions, in the name of cost-cutting. It has outsourced work all over the globe. It has built a whole new campus in union-hostile South Carolina, primarily to escape the “hostage” situation it faced before, with all of BCA’s deliveries at the mercy of one unionized labor force.
But while Boeing has won every battle in this long labor war, the result has not been a strategic victory. Instead, in 2024, the company finds itself badly trailing Airbus in both orders and deliveries, with little chance of catching up in the near term. This is in large part due to a series of high-profile self-inflicted failures, of which the near catastrophe on Alaska Flight 1282 on Jan. 5 is just the latest.
Boeing needs a top-to-bottom change of culture, and it can start by rebuilding its relationship with its touch-labor union.
- This year’s talks are the first in a decade.
- Boeing has zero leverage.
- Dropping union animus may be too much to ask.
Instead of progress, Boeing must deal with new crisis of Alaska Flight 1282 on Wednesday’s earnings call
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By Scott Hamilton and Judson Rollins
Jan. 29, 2024, © Leeham News: Twenty-twenty-four will be a crucial year for Boeing.
A door plug blew off a Boeing 737-9 MAX Jan. 5. The company must deal with the fallout on its 2023 year-end earnings call Wednesday. Credit: Capt. Chris Brady.
An unexpected twist is the crisis from Alaska Airlines Flight 1282, in which a door plug blew off a 737-9 MAX at 16,000 ft. Nobody died, and injuries were light. But the MAX 9 fleet was grounded in the US by the Federal Aviation Administration. The FAA launched a formal investigation into the “quality escape” that is believed to have led to the accident. Last week, the FAA put a freeze on current production rates of the 737 and, for now, killed Boeing’s plans to add a line at its Everett (WA) plant.
Beyond dealing with the 1282 aftermath, Boeing hopes this year to clear its inventory of 737 MAXes and the 787. Clearing the inventories brings cash and some profits. But will this move to the right while Boeing is under even more scrutiny by the FAA?
Boeing planned to be positioned for 2025 to pay down debt incurred during the MAX grounding and the COVID-19 pandemic. Progress toward free cash flow targets of $10bn per year by 2025/26 was forecast at its Nov. 2, 2022, investors day. This is almost certainly inoperative.
Leadership changes required at Boeing, say conference delegates
By Scott Hamilton
Analysis
Special Coverage of the Boeing Crisis
Jan. 26, 2024, © Leeham News: At the first commercial aviation conference following the Alaska Airlines Flight 1282 Boeing 737-9 accident on Jan. 5, much of the conversation was about the fallout to Boeing. Spirit AeroSystems was a topic of less conversation, even though the problem with 1282’s door plug appears to have originated with Spirit.
Aviation Week’s supplier conference was supposed to begin with a fireside chat with Boeing’s Ihssane Mounir, the head of Boeing’s commercial supply chain. Unsurprisingly, Mounir canceled the week before as the Alaska accident—in which there were no fatalities and only a few minor injuries—expanded into a full-blown crisis for Boeing.
News that the Federal Aviation Administration dropped the hammer on Boeing by freezing current 737 production rates and killing, for now, expansion of the airplane’s final assembly to the “North Line” in Everett (WA) brought disbelief that Boeing has fallen so far from what was once considered the Gold Standard of American engineering.
And, with contract negotiations beginning in March with its touch-labor union, the IAM 751, aerospace analyst Ron Epstein of Bank of America predicted that 751 has more leverage now than in recent years and Boeing will be in the weaker bargaining position.
David Calhoun, CEO of The Boeing Co.
Other than consultant Richard Aboulafia, a vociferous critic of Boeing CEO David Calhoun, speakers were willing to definitively call for changes in Boeing’s leadership. But in sideline talk, consensus was clear: “leadership” at Boeing headquarters and in Seattle with Commercial Airplanes has to go.
But there was no agreement, or even suggestions, about who should replace Calhoun and Stan Deal, the CEO of Commercial Airplanes.
Updated: FAA grounds expansion plans for Boeing 737 MAX production, approves path for MAX 9s to resume flights
UPDATING (2)
- Hundreds of 737s scheduled for delivery this year and in coming years affected by FAA action.
- IAM shares concerns with Boeing, FAA.
By Dan Catchpole
Special Coverage of the Boeing crisis
The Federal Aviation Administration froze Boeing’s 737 production rate at the current level (31/mo, 372/yr) and for now killed expansion of a 4th line in Everett. Credit: Leeham News.
Jan. 24, 2024 © Leeham News: The Federal Aviation Administration said Wednesday it will not approve a planned expansion of Boeing 737 MAX production. The agency also laid out a path to get MAX 9 airplanes back flying.
The jetliners were grounded on January 6 after a door plug blew out the day before from a two-month-old 737 MAX 9 flown by Alaska Airlines. The FAA investigation found significant quality lapses in the program. Inspection of the MAX 9 fleet found problems in other airplanes.
A few of Alaska’s Boeing 737-9 MAXes parked at SEA-TAC International Airport awaiting return to service. Credit: Brandon Farris Photography.
After grounding the 171 MAX 9 airplanes operated by Alaska (65) and United Airlines (79), the FAA “made clear this aircraft would not go back into service until it was safe,” FAA Administrator Mike Whitaker said Wednesday in a public statement (Emphasis added). “The exhaustive, enhanced review our team completed after several weeks of information gathering gives me and the FAA confidence to proceed to the inspection and maintenance phase.
“However, let me be clear: This won’t be back to business as usual for Boeing. We will not agree to any request from Boeing for an expansion in production or approve additional production lines for the 737 MAX until we are satisfied that the quality control issues uncovered during this process are resolved,” he said.
“The quality assurance issues we have seen are unacceptable,” Whitaker said. “That is why we will have more boots on the ground closely scrutinizing and monitoring production and manufacturing activities.”