Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Boeing wants to remarket China’s airplanes. It’s costly and time consuming. April 28, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 19. April 25, 2025
- How good is the C929? Part 2. April 24, 2025
- Boeing First Quarter Results Update: China is 10% of the backlog, with 500 in “Unidentified” April 24, 2025
- Boeing First Quarter Results: Tariffs, Return flights, $10.55bn asset sale April 23, 2025
Trouble with the Boeing backlog?
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By the Leeham News Team
Aug. 8, 2024, © Leeham News: On July 31, 2024, Boeing (BA) released the financial results of the second quarter, in what was widely expected to be a dismal reporting period. The company had been facing pressures from all sides of the spectrum, including certification, production, supply chain and financial, to mention a few.
The third quarter now brings fresh challenges as BA will have to deal with an increasingly militant union membership (and contract negotiations), who want to claw back concessions previously granted to the company.
Indeed, the 2Q2024 results were less than stellar, with an ever-increasing cash burn and a decreasing amount of commercial aircraft delivered. The silver lining to the very dark cloud which hung over the release, was news that the embattled reign of CEO Dave Calhoun was coming to an end, and newly minted Kelly Ortberg of Rockwell Collins fame, would replace him on August 8.
Lost in the eruption of euphoria which saw Boeing shares rise 2% on the day, despite losses that surpassed the previous quarters figures, was news that all was not well with the Boeing Commercial Aircraft (BCA) backlog.
Typically, when previous results were poor, optimists pointed to the duopoly Boeing shares with Airbus and the multi-billion-dollar backlog of orders it holds. “Airbus production is maxed out, so what are airlines going to do for new aircraft?”, was the common refrain.
Spirit Q2 / 2024 results are awful
By the Leeham News Team
Aug. 5, 2024, © Leeham News: Spirit AeroSystems released its second quarter financial results today and it wasn’t pretty.
Revenues were $1.492bn, up from $1.365bn last year – a 9% increase, year over year. However, the net loss was ($415m), vs ($206m) in 2023.
This brought earnings for the first six months of 2024 to a loss of ($1.032bn), compared with ($488m) for the same period last year.
Cash used in Operations burned through $566m vs ($183m) last year, while Free Cash Flow (FCF) was ($597m) against ($211m) in 2023.
Airbus: Focus on the Core
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By the Leeham News Team
Aug. 5, 2024, © Leeham News: “…We are evaluating all strategic options given the nature of the situation, such as restructuring, …portfolio review, cooperation and potential M&A, and that might be a combination of some of that.”
This was an excerpt of the opening statement of Airbus (AB) CEO Guillaume Faury on the July 30, 2024, earnings call, discussing the situation at Airbus Defense and Space.
For the second quarter, Airbus booked a €989mn charge at the division and blamed it on changing market conditions, disruptive new players and improperly balancing risks and rewards. Faury also mentioned ‘proper contractual conditions’, which more than likely is coding for contracts that were underbid. He continues:
“We’ve also implemented a highly selective bid-no-bid strategy, including the need for an increased technological maturity threshold and assessment before any firm proceedings.”
Left specifically unsaid, but implied, is the possibility of spinning off the Defense and Space unit, with a focus shift to its core business: commercial aircraft.
While other defense contractors seem to be able to negotiate contracts that earn a tidy profit, the two largest airframe manufacturers, Airbus and Boeing, struggle to do the same.
Bjorn’s Corner: New engine development. Part 18. Combustors.
By Bjorn Fehrm
August 2, 2024, ©. Leeham News: We do an article series about engine development. The aim is to understand why engine development now has longer timelines than airframe development and carries larger risks of product maturity problems.
To understand why engine development has become a challenging task, we need to understand engine fundamentals and the technologies used for these fundamentals.
We have covered the problem areas of (Figure 1) compression in the compressor and combustion, with its requirements on low Soot and NOx emissions. Now we look at how combustors are designed to achieve such low emissions.
Figure 1. The gas turbine cycle and its parts. Source: Rolls-Royce: The Jet Engine.
The Boeing Liabilities Problem: A decade to resolve
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By the Leeham News Team
Analysis
Aug. 1, 2024, © Leeham News: During the second quarter, Boeing (BA) CFO Brian West admitted that the first half of 2024 will be a cash burn period, given the problems over at Boeing Commercial Aircraft (BCA) with suppliers, deliveries and certification issues. Estimates varied and West was non-committal in his comments. However, he alluded to a repeat of the performance in Q1, which had a Free Cash Flow (FCF) burn rate of ($3.9bn) and an operating cash flow usage of ($3.4bn).
The second quarter results released on July 31, 2024, underlined just how badly things have deteriorated. FCF for the period was ($4.3bn) and operating cash flow was ($3.9bn).
BA attempted to mitigate the drop in cash by borrowing an additional $10bn in April, which bumped the Long-Term Debt (LTD) back up to previous highs and guaranteed that Interest Expense will be a troubling item for them, moving forward. In Q1/2024 Boeing paid out $569m in debt servicing costs with almost $47bn in LTD sitting on their balance sheet. With the new obligations, consolidated debt now sits at $57.9bn.
For comparison, at the end of 2020 Boeing reported (in millions of dollars):
To what extent can the A321XLR replace the Boeing 757, Part 4
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By Bjorn Fehrm
August 1, 2024, © Leeham News: We are comparing the Airbus a321XLR to the Boeing 757 to understand to what extent it can replace the 757 on the longer routes it operates for major airlines like United, American, and Delta.
We have examined the aircraft’s development and operational history, their Apples-to-Apples capacity and range, and their operational costs for a typical domestic configuration. Now, we equip the A321XLR with a long-range, lie-flat cabin and look at what long-range routes it can fly in this configuration.
Summary:
- The A321LR/XLR can fly up to 10-hour routes in a long-range configuration, flying from mid-USA to mid-Europe.
- With its passenger capacity, range, and operational economics, it covers most of what Boeing set out to cover in its MOM and later NMA studies.
Boeing names new CEO; losses widen, negative cash flow again. Update 1, reaction.
July 31, 2024, © Leeham News: The Boeing Co. today named Kelly Ortberg president and CEO, effective Aug. 8. He succeeds David Calhoun, who retires then. Calhoun was named president and CEO of Boeing in January 2020.
Boeing also announced 2Q2024 and 1H2024 earnings. The company reported 15% lower revenues for the second quarter compared with 2023, a net loss of $1.4bn vs a net loss of $149m last year, and negative operating cash flow of $3.9bn vs positive cash flow of $2.875bn in 2Q2023.
For the half, revenues were $33.4bn vs $37.67bn last year. The net loss was $1.794bn vs a loss of $574m. There was a negative operating cash for the first half this year of $7.285bn vs a positive flow of $2.557bn last year.
Ortberg is 64 years old, much older than previous CEOs when named. He’s been in aerospace for 35 years, most recently as CEO of Rockwell Collins. He led the integration of Rockwell’s merger with United Technologies (now RTX), retiring in 2021. Ortberg began his career as an engineer with Texas Instruments and served as a program manager during his ascent up the corporate ladder.
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Airbus 1H2024 results: Space business problems lower results
July 30, 2024, © Leeham News: Airbus has presented its results for the second quarter of 2024. The results were impacted by a thorough review of its Space business, which resulted in a quarterly write-off of almost €1bn.
The rest of the group is performing as expected after adjusting for Airbus’ announcement in June that the year’s deliveries of A320/A321 aircraft fell short by 30 units to 770 total, as the supply chain can’t ramp from last year’s 730 to the anticipated 800.
The company announced a 1H2024 profit of 733m€ (1,452m€ 1H2023), on revenue of 28.8bn€ (27.7bn€).
Boeing, Embraer differ on the future of upgauging
By Judson Rollins
Introduction
July 30, 2024, © Leeham News: Embraer’s new 20-year Market Outlook, released during the Farnborough Air Show, forecasted the demand for jets with more than 150 seats for the first time. This comes as market observers speculate the Brazilian jet maker is mulling a move into aircraft larger than its current flagship E2 family.
However, the Brazilian jet maker delivered temperate commentary on the future of upgauging, citing one-time developments it believes are unlikely to repeat. It said, “The market environment that led to [an] increase in average aircraft size will not be the same in the future. Consequently, the growth trend likely will not continue.”
For instance, a typical two-class Boeing 737-800 Layout of Passenger Accommodations (LOPA) in the mid-2000s comprised approximately 150 seats. By the late 2010s, this shifted to 160-166 seats. A similar Airbus A320 LOPA went from 140 to 150 seats.
Source: Embraer Market Outlook (data from Sabre).
Will the pre-COVID upgauging trend continue, and what are its implications for future aircraft selection? Boeing and Embraer have decidedly different views, and the latter’s view will drive its decision whether to enter the market for 150+ seaters.
Summary
- Boeing says upgauging will continue, driven equally by cabin densification and aircraft size selection.
- Embraer believes upgauging is largely over.
- Both OEMs’ views have key flaws.
- The upshot: “Bigger” doesn’t always equate to “more profitable.”
Boeing Estimates: How accurate and clear are the predictions?
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By the Leeham News Team
Analysis
July 29, 2024, © Leeham News: Annual projections for the upcoming year are an important piece of information released to the world at large for any publicly traded corporation, on what can be expected for the near and extended future.
Boeing (BA) reports its 2Q2024 earnings this Wednesday. An update of its guidance may be forthcoming as Boeing continues to work through additional costs following the Jan. 5 accident involving a 737-9 MAX with Alaska Airlines.
Boeing relies heavily on the use of estimates when filing its annual report and this information is crucial to investors when considering whether to invest, hold, sell or short stock in the company. Not only are estimates used in its financial reporting system, generally known as Program Accounting, but each year BA puts out an expected value of revenue to be generated in the future.
This prognostication is based on converting a percentage of the backlog for the following year and for a total period of four years to come. The 2023 projection is as follows:
“Our total backlog includes contracts that we and our customers are committed to perform. The value in backlog represents the estimated transaction prices on performance obligations to our customers for which work remains to be performed. Backlog is converted into revenue, primarily based on the cost incurred at delivery and acceptance of products, depending on the applicable revenue recognition model. Our backlog at December 31, 2023 was $520,195 [million]. We expect approximately 16% to be converted to revenue through 2024 and approximately 62% through 2027, with the remainder thereafter,” Boeing wrote.
There is also a caveat:
“There is significant uncertainty regarding the timing of when the backlog will convert into revenue due to timing of 737 and 787 deliveries from inventory and timing of entry into service of the 777X, 737-7 and/or 737-10,” Boeing writes in its 2023 annual report.