Boeing Cuts 737 Delivery Estimate in Blood Red 3Q Earnings Report

By Dan Catchpole

October 25, 2023, © Leeham News: Boeing slashed its 737 MAX delivery forecast for the year to between 375 and 400 in its third quarter earnings report on Wednesday. The company attributed the cut to rework and inspections to fix manufacturing problems in aft pressure bulkhead sections produced by beleaguered supplier Spirit AeroSystems. It maintained its 787 delivery forecast of 70 to 80 airplanes by year’s end.

Boeing recorded a loss of $1.6bn in the third quarter, its worst quarterly performance this year. The company continues to struggle with supply chain and production problems. Boeing’s defense division spilled the most red ink on the ledger book due to problems on its Air Force One (VC-25B) program and losses on a satellite contract. BDS recorded a $924mn loss. Boeing executives acknowledged that the company’s recovery is taking longer than they had expected, but they remained upbeat about stabilizing the aerospace giant in the next couple years.

Summary:
  • Boeing reports worst quarterly earnings since 3Q in 2022, when it recorded $3.3bn in losses.
  • Boeing Defense, Space and Security recorded a $428mn loss on its Air Force One (VC-25B) program and a $315 million loss on a satellite contract.
  • The company continues to struggle with supply chain problems and slower-than-expected rework on the 737 program.
  • Boeing CEO says losses are a sign of the company’s commitment to a transparent culture and uncovering, rather than ignoring, problems.

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Q3 Earnings: Hexcel’s Composites Rides The OEM Production Rate Ramp Up Wave, But Margins Pressures Persist

By Chris Sloan

Oct. 25, 2023, © Leeham News  – Hexcel Corporation, a tier four carbon fiber supplier best known for its significant contributions to all-composite Boeing 787 and Airbus A350s, reported substantial overall Q3 revenues despite inflationary and production efficiency pressures. While active in other industrial programs like space and defense, industrial applications, and carbon fiber auto wheels; commercial airspace accounts for the bulk of Hexcel’s total sales. Overall, third-quarter revenue increased by 19.2% to $251.9m year-over-year.

“Hexcel continues to benefit from the post-pandemic travel recovery and from the growing pull for newer, more fuel-efficient lightweight aircraft to meet that demand and to replace aging fleets,” commented Hexcel Chief Executive Officer and President Nick Stanage during the Q3 earnings call. The company perceives itself as well positioned to supply the combined Airbus and Boeing backlog currently tallying at a record 13,775 aircraft.

The company maintains that over the next three years, build rates for narrowbody aircraft are expected to increase by nearly 50%, and build rates for widebody aircraft are expected to almost double. Stanage insists the OEMs won’t be waiting on Hexcel, like they are at others at all supply chain tiers. “This is both a challenge and a great opportunity, and Hexcel is determined to be ready to ensure our products are produced efficiently and delivered on time to our customers,” maintains Stanage. The CEO further bullishly adds, “This is truly a great time to be in the business of manufacturing lightweight composite materials.”

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Lockheed bows out, Airbus plows ahead in USAF tanker procurement; Boeing favored

By Scott Hamilton

Oct. 24, 2023, © Leeham News: Lockheed Martin Co. (LMCO) threw in the towel on Oct. 23, announcing it will not submit information to the US Air Force for the KC-Y aerial refueling tanker procurement.

Lockheed Martin drops out of the KC-Y US Air Force tanker procurement for an aerial refueling tanker. Airbus, its partner, will proceed alone. Credit: Lockheed Martin.

But its partner, Airbus, quickly said it will respond to the USAF’s Request for Information (RFI).

“Airbus remains committed to providing the U.S. Air Force and our warfighters with the most modern and capable tanker on the market and will formally respond to the United States Air Force KC-135 recapitalization RFI. The A330 U.S.-MRTT is a reliable choice for the U.S. Air Force: one that will deliver affordability, proven performance, and unmatched capabilities.”

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Q3 Could Be Boeing’s Reddest Earnings Report This Year

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By Dan Catchpole

A Boeing T-7A Red Hawk aircraft sits on the tarmac after delivery to the U.S. Air Force.

The U.S. Air Force accepted the first of five T-7A Red Hawk test aircraft from Boeing on Sep. 14th. (Image courtesy of USAF and Boeing Co.)

October 23, 2023, © Leeham News: Wall Street analysts expect Boeing to post its biggest quarterly loss of the year when it reports its third quarter earnings on Wednesday. The company’s commercial and defense divisions continue to struggle with rework, slow work, supply chain snafus, and other challenges for both its commercial and defense and space divisions. Those divisions’ losses likely will be offset somewhat by Boeing Global Services, which continues to be a bright spot on the company’s otherwise blood-red ledger book.

Analysts aren’t expecting any big surprises, just more of the same financial dark clouds that have been camped out over Boeing in recent years. They expect Boeing to announce a loss due to well-known challenges, especially with its 737 and 787 programs, as well as ongoing struggles within Boeing Defense, Space and Security. In recent research notes, investment analysts have forecast BDS posting a loss between $475m and $500m for the quarter.

Across Boeing’s divisions, Wall Street expects the company to book more than $1bn in losses. Projections vary by as much as $1bn. At the low end, TD Cowen expects a loss of just under $900m. At the other end, Bernstein projects about $1.85bn in losses. In either case, that would be the biggest loss since 2022’s third quarter, when Boeing posted a $3.3bn loss.

Summary:
  • BCA continues to struggle with the 737 and 787 programs. It just announced a price revision deal on those programs with airframe supplier Spirit AeroSystems.
  • BDS is expected to post more charges due to ongoing struggles with new and mature programs.

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Order Risk for Boeing: Warning Flags

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By the Leeham News Team

Oct. 19, 2023, © Leeham News:  Airbus and Boeing have airplane order backlogs exceeding 10,000 aircraft. Most of the respective production lines are sold out to 2026 and even beyond 2030. Airlines and lessors must place orders soon to get into the queue. If early delivery positions are sought, the customers must hope Airbus and Boeing can find a few slots—but there won’t be many.

Like airlines selling their seats, Airbus and Boeing overbook production slots. The OEMs bet on boosting production rates, customers willing to defer deliveries (for whatever reason), cancellations to open earlier slots, or to meet delivery commitments. These bets sometimes pay off—and sometimes they don’t.

Today, LNA looks at the Top Boeing Customers of each product line and assesses the risk factors of whether these carriers will likely take delivery of their orders. We looked at Airbus’ Risk Orders on Oct. 16.

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Pontifications: For aviation geeks and historians; Boeing’s next airplane

By Scott Hamilton

Oct. 10, 2023, © Leeham News: For aviation geeks—and there are plenty of us—and historians, a resource that is the best single place I’ve seen is Chris Sloan’s TheAirchive.Net – The Hub of Air Transport History. Sloan—who joined LNA yesterday as a writer—started The Airchive 20 years ago. It’s a compilation of just about everything a geek or historian could imagine: timetables, route maps, brochures, information about airport terminals, cabins, cockpits and so much more.

Sloan’s data of course includes photos of airplanes, memorabilia, safety cards, boneyards, and even menus. He also has a section highlighting museums. This section includes many well-known museums and also some I’d never heard of.

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Earnings season about to begin. Here’s what to watch for.

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By Scott Hamilton

Oct. 9, 2023, © Leeham News: Earnings season reporting is about to start and there are some key things to look for. The first companies, including Boeing, begin reporting the week of Oct. 23.

A few companies already raised red flags. Boeing said it will report a loss in the third quarter, which ended Sept. 30, because of problems at Spirit AeroSystem. Spirit Aero builds the entire fuselage for the Boeing 737 and the nose sections for the Boeing 787, 777, and 767/KC-46A. Spirit Aero has been plagued with quality control issues, delaying deliveries and requiring rework of planes already produced or in final assembly at Boeing.

When Spirit Aero sneezes, Boeing can catch the cold.

The aforementioned problems continue to push Spirit Aero into financial disarray. LNA has reported extensively on its financial condition and trends.

Another Spirit, the US-based ultra-low-cost airline, is also headed in the wrong direction. LNA doesn’t normally cover airline earnings—there are plenty of outlets that do—but in this case, Spirit Airlines has a major outstanding order from Airbus. Spirit Airlines is also the subject of a merger application with JetBlue, another major Airbus customer.

Spirit Airlines recently adjusted its third quarter guidance significantly downward. It now forecasts a 3Q loss margin of 14.5% to 15.5%, nearly triple the same period last year. A year ago, LNA expressed concerns over the proposed merger between JetBlue and Spirit (JetBlue was the bidding company). Our concerns have deepened. JetBlue may be well advised to exercise a clause that is presumed to be in the merger agreement: Material Adverse Change. Withdrawing from the merger may well be the best course for JetBlue. Acquiring Spirit Airlines may well be a financial black hole for JetBlue.

The supply chain remains stressed. As in the case of Spirit Aero and Boeing, if any key supplier falls down on the job, the Original Equipment Manufacturer (OEM) catches cold.

Here’s a rundown of companies to watch.

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Risk Adjusted Business: Aircraft and leasing values

By William Loh, International Aviation Advisors and

Dr. David Yu, CFA, Senior ISTAT Appraiser, AAVA Group, NYU Shanghai and Stern

Special to Leeham News

Oct. 3, 2023, © Leeham News: Investing in aircraft has become increasingly popular over many decades now, and for good reason.  The returns can be most attractive and well-chosen assets tend to hold their value well over the medium term.  Some of them have the option to extend the useful life out to 40 years or more in a freighter conversion.

As with most investments though, owning aircraft involves risk and requires subject matter expertise to avoid surprises and pitfalls.  Some of this will involve aircraft selection, understanding industry dynamics, and incorporating these into the modeling of future values/lease rates and equity returns, which have been a focus of ours for several years.

Rather than the traditional method of producing bi-annual static forecasts of future values, our approach has been to develop a simulation model of possible future outcomes.  This results in a market-driven probability distribution of the future asset value, rather than a single point forecast (rarely achieved in practice).  Most traditional forecasts are discrete points including the classic high/low/base versions. Our forecasts are updated whenever it is appropriate based on market changes.

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Analysis: With Gentile out at Spirit, here’s what Shanahan’s hiring likely means

By Bryan Corliss

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Oct. 2, 2023, © Leeham News – Tom Gentile is out as CEO of Spirit AeroSystems, the victim of a number of serious production missteps and a failure to lead the Tier 1 supplier into a stronger position following the Covid-19 pandemic and the grounding of Boeing’s 737 MAX. 

Interim Spirit AeroSystems CEO Pat Shanahan.

The new interim CEO is Pat Shanahan, a long-time Boeing and Pentagon executive who has been serving on Spirit’s board since 2021. 

Spirit said its board is conducting a search for a new chief executive.

  • Markets respond to news
  • Shanahan faces huge challenges as CEO
  • Shanahan’s resume fits Spirit’s need 
  • Our takeaway: What this means for Spirit’s future

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Mammoth quietly drops trade secrets theft lawsuit

By the Leeham News Team

Oct. 2, 2023, © Leeham News: Mammoth Conversions quietly dropped its long-running trade secrets lawsuit against Sequoia Conversions, a competitor, for alleged trade secrets theft.

Mammoth and Sequoia settled and dropped the lawsuit, with each side paying its own costs, on Sept. 8. The case was filed in the US District Court in Southern California. Sequoia’s David and Wayne Dotzenroth were also defendants. The action against them also was dropped. The case was scheduled to go to trial in January.

Mammoth previously dropped its lawsuit against the University of Wichita’s NIAR engineering center and Split Rock Aviation, a consulting firm working with Sequoia. Each side bore its costs in these dismissals.

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