Leeham News and Analysis
There's more to real news than a news release.
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.
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.
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.
When does a larger airliner pay off? Part 3
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By Bjorn Fehrm
March 21, 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 started with the ceo range last week. We could see why the A320 was a better choice than an A319, with only a few more passengers per departure required to close the operating cost difference for a route, whereas the A321, being a larger jump in capacity, did not have the same per seat mile economics until traffic increased substantially.
Now we study the change to the neo generation and try to understand why the A319, a popular model as a ceo variant, did not sell at all as a neo.
Summary:
- The A319ceo had a suitable capacity for routes before 2015. It also had a passenger mile cost advantage over the A320 for thinner routes.
- After 2016, when the A320neo entered the market, the A319neo didn’t sell at all, despite the continued existence of thin routes. We explain why.
Embraer goes for growth after ‘solid’ 2023
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By Tom Batchelor
March 18, 2023, © Leeham News
A strengthening order backlog and an uptick in deliveries helped Embraer turn a profit last year.
In a call with investors as the company outlined its 2023 earnings results, Francisco Gomes Neto, president and CEO of Embraer, said commercial activity had “intensified” over the last 12 months, with “solid demand” across its markets.
Unsurprisingly, Embraer has felt the effects of supply chain delays buffeting the entire industry (though it said not as acutely as in 2022). The company still managed to deliver a total of 181 jets, up from 160 in 2022.
Of those, 64 were commercial aircraft, 115 were executive jets (74 light and 41 medium, helped by the strong performance of the Phenom 300) and two were military C-390s. E2 family deliveries more than doubled year-on-year, from 19 to 39 in 2023.
The recent firm order from American Airlines for 90 E175s, with purchase rights for 43 additional jets, had resulted in a “great start to 2024”, Neto added.
Revenues totaled $1.975bn in the fourth quarter and $5.269bn across 2023, which was 16% higher than in 2022 but at the lower end of the guidance range for the year.
In 2023 as a whole, the company reported adjusted EBIT of $350m, with adjusted EBIT and EBITDA margins of 6.6% and 10.7%. Adjusted EBIT stood at $181.7m in 4Q23, with adjusted EBIT and EBITDA margins of 9.2% and 12.8%, respectively.
Looking ahead to 2024, Embraer said total company revenues would sit in the $6 to $6.4bn range, with an adjusted EBIT margin of between 6.5% and 7.5%.
When does a larger airliner pay off? Part 2
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By Bjorn Fehrm
March 14, 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 start with the ceo range to understand at what passenger numbers did a route support the A319 versus the A320 and A321.
The same change in airliner size happened for the Boeing 737, but we will limit the investigation to the Airbus range as the modern variants, 737 MAX 7 and 10, are not yet in service.
We will use our Airliner Performance and Cost Model (APCM) to model typical sectors and see at what load factors the economics favor a switch.
Figure 1. The Airbus A320ceo with it’s characteristic wing fences. Source: Airbus.
Summary:
- We develop the Passenger Mile Costs for the different A320ceo variants, A319, A320 and A321.
- Then, we gradually lower the number of passengers transported on the A320 and A321 until we have the same Passenger Mile Costs for all variants. This shows how many more passengers a route must support to motivate a switch to a larger model.
Airbus and Boeing need each other for healthy supply chain
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By Dan Catchpole
March 11, 2024, © Leeham News: In the public arena, Boeing is flailing. It’s the subject of public rebukes by government officials, a new criminal investigation by the US Department of Justice, and a seemingly endless stream of scathing headlines.
However, executives at its European counterpart, Airbus, are not celebrating Boeing’s struggles.
“Airbus needs Boeing,” said Joe Marcheschi, director of flying parts procurement services for Airbus Americas. “Disruption, and turmoil in the supply chain hurts Airbus, too.”
The industry’s supply chain depends in large part on the two aerospace giants—which means, indirectly, Boeing and Airbus need each other.
Instability at the airplane makers may in some sense have furthered this interdependence by prompting many suppliers dependent on one OEM to diversify by supplying both companies and by looking outside commercial aerospace.
Summary:
- Suppliers’ efforts to diversify beyond one OEM have deepened interdependence.
- Labor, materials are among biggest supply chain challenges.
- Airbus supporting suppliers to solve bottlenecks.
When does a larger airliner pay off
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By Bjorn Fehrm
March 7, 2024, © Leeham News: Over the last decades, the choice of domestic market airliners has gone from the typical 120-seater to today 200 seats or more. We will look into what drives these decisions and where the cross-over points are from, say, an Airbus A319 to A320 and then to A321. We will limit the investigation to the Airbus range as the Boeing 737 MAX range has still not their MAX 7 and MAX 10 in service.
We will use our Airliner Performance and Cost Model (APCM) to model typical sectors and investigate what load factors favor a switch.
Summary:
- The typical domestic cabins have gone from 120 to 150 seats to now 200 seats or above.
- As airliner types grow, their trip costs increase. At what load factors can you motivate an A321 instead of an A320?
Machinists want new Boeing contract ensuring work for decades to come
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By Dan Catchpole
Updated 2:35 p.m., March 4, 2024
The IAM 741 began promoting a strike fund for 2024 Boeing contract negotiations in 2019. Source: IAM 751.
March 1, 2024 © Leeham News: When representatives from Boeing and the Seattle-area machinists union start formal negotiations on Friday, the context will be a world apart from when they bargained the existing contract 10 years ago. Back then, Boeing management had a new airplane program (777X) as leverage and exploited an internal fight in the International Association of Machinists and Aerospace Workers to push through a concession-laden contract.
Now, Boeing is battered after years of self-inflicted crises, a pandemic and problem-riddled supply chain, and, after decades of defeats, labor has scored major victories around the country, especially in aerospace.
Head of District Lodge 751 Jon Holden told Leeham News & Analysis during a recent interview that he is determined to get back what was taken from the roughly 31,000 members he represents in the Puget Sound area.
The union wants better work-life balance, better pay and retirement benefits, and guarantees that will keep it healthy for years to come.
Given its ongoing struggles, Boeing can little afford to alienate the union representing the vast majority of people assembling its commercial jetliners, industry analysts say.
However, Boeing management and the IAM have had a rocky relationship since workers at the company organized in 1935. In the past 20 years, company leadership has taken a hard line against organized labor and repeatedly pushed for concessions despite banking substantial profits and spending billions on share buybacks.
Summary
- Unions are resurgent in tight labor market
- Analysts: Boeing can’t afford a labor unrest
- Talks breakdown between SPEEA, Boeing over Tech and Safety Pilots contract
- Boeing firefighters reject latest offer
Boeing’s program accounting reduce future profits
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By Bjorn Fehrm
February 29, 2024, © Leeham News: Boeing published the results for 2023 on the 1st of February. It reported a loss of $2.2bn, compared with a loss of $5.0bn for 2022.
Experienced industry analysts know these results do not reflect the company’s state, neither for 2023 nor for 2022. The reason is Boeing uses so-called program accounting for the production costs of its Commercial Aircraft programs. Based on Boeing data, the loss for 2023 would have been at least $3bn higher using classical accounting methods.
The program accounting idea is to average the high initial cost per produced unit of a new aircraft program with the lower production costs of units later in the program. Thus it smooths the reported profits for a new aircraft program.
It has recently been used to “smooth” reported results of troubled aircraft programs, like the 737 MAX. The drawback is that once the troubles are gone, the negative effects on the company’s future profits are not. We will use the 737 MAX troubles to show the effect of this variant of program accounting.
Picture of a 737 MAX production experiencing problems. Source; Boeing and Leeham Co.
Summary:
- Boeing increased the 737 Max deferred production cost pushed to future payment by 730% between the end of 2018 and the end of 2023.
- The result of this way of using program accounting to reduce what is shown today is that future profits of the 737 MAX program will be reduced by almost a billion dollars per year during the next 10 years.