Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Boeing’s 737 North Line and the Everett factory: in transition now June 9, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 25. June 6, 2025
- New RISE powerplant benefits from decades of GE research and development June 5, 2025
- Engine makers emphasizing durability, reliability June 4, 2025
- Boeing CEO: Lessons learned are key to certification of 737-7/10 and 777X June 2, 2025
Risk-Adjusted Business Outlook
- A 2024 view of macroeconomic and indicators for the aircraft finance and leasing markets
By David Yu and William Loh
Feb. 13, 2024, © Leeham News: As we entered 2024, this is an interesting time for aircraft finance and leasing. As an industry and economy, we have come from historically low-interest rates (cost of funds) close to 0% to a federal funds rate of 5.5%.
The US Federal Reserve has indicated cutting rates going forward. The US economy is still ripping it on many measures and the threat of a hard landing has all but vanished, with inflation coming under control. That said, Wall Street consensus is a low 4% federal funds rate which would mean a lot more rate cutting. But this is not what the frothy economic indicator data suggests. Instead of immediate large cuts, we only see small and short cuts towards the end of the year.
This is not what some folks were hoping for when they entered into previous deals. They want to have the lowest rate possible, especially for those with debt coming to maturity and needing to be refinanced in 2024 (a significant number). Wherever interest rates end up, it will not be what investors have planned for, and too high a rate environment will all but ensure an increased pressure to sell.
Airbus should tread carefully
- Airbus announces is 2023 earnings on Feb. 15.
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By the Leeham News Team
Analysis
Feb. 12, 2024, © Leeham News: United Airlines has reportedly been looking to Airbus to replace the Boeing 737 Max 10s that Boeing is having difficulty delivering, due to the Alaska Airlines accident and the resulting delays in certification to the Max 7, Max 10 & 777X programs. Airbus has been searching for ways to recover/create slots to take on a premium customer and poach them from Boeing.
A320 production rates are headed towards 75 a month in the 2025/2026 time frame, with Airbus confident that its supply chain can meet the demand and will commit to the rate for the long term. These are record production numbers with the previous high-water mark reached in 2019 with 863 total deliveries: 642 of those from the A320neo family, or 54 a month. The A220 program is also headed for an increased production rate of 14 a month at about the same time.
However, Airbus has its own kinks to work out, along with concerns outside its control:
- Geared Turbofan (GTF) on wing engine issues from supplier Pratt Whitney.
- The A220 & A330Neo lines aren’t selling as well as they’d like to
- 2024 US presidential election could really upend the apple cart.
- Another Max accident would be a bad thing, even for Airbus (more below).
There has been speculation and calls for Airbus to push the envelope even more, reaching 90 a month to offset the Boeing shortcomings.
75 & 14 a month are already huge goals and pushing suppliers to go past those targets might compromise quality. People will cut corners when they are greedy. Besides, a little scarcity when you are the top dog isn’t the worst thing; Boeing isn’t coming to the party with anything new in the near future.
2023 Boeing Financial Results: $41m earned at BCA–(or was it?)
- Airbus 2023 earnings are announced on Feb. 15.
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By the Leeham News Team
Feb. 9, 2023, © Leeham News: On January 31, Boeing released its year end results for the fiscal year and despite the entire company ending up in the red, analysts and investors alike pointed to the bright spot at Boeing Commercial Airplanes (BCA). Positive margins and earnings of $41 million. Some good news finally, after five years of less than stellar results.
Boeing has been beset by problems since its last profitable year in 2018:
- Two 737 MAX crashes and subsequent grounding, leading to a buildup in inventory.
- 787 delivery stoppage and a further build-up in inventory, with a $3.5bn write-off.
- 777X certification delay and a $6.5bn write-off.
- Numerous and costly production missteps.
The slide continued into 2024 when a 737 Max 9 door plug blew out during an Alaska Airlines flight, leading to increased scrutiny by regulators and further delays to the Max 7 and Max 10 certification process.
With the earnings release, there was some good news amongst the rubble; BCA was finally beginning to turn things around in the right direction, posting positive margins and a gain of $41 million. Not earth-shaking, but a small measurable baby step towards profitability.
Boeing to Suppliers: FAA audit of 737 could change production schedule, but stick to plan for now
[Ed. note: The headline and top of this story have been reworded for clarity.]
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By Dan Catchpole
Boeing’s Ihssane Mounir talks to suppliers at the 2024 Pacific Northwest Aerospace Alliance conference.
Feb. 8, 2024 © Leeham News: The head of the Boeing Commercial Airplanes supply chain told suppliers to keep making parts for the 737 MAX at the existing production schedule while the Federal Aviation Administration scrutinizes Boeing’s production of the single-aisle jetliner. He added that the production pace could be affected by the FAA’s audit results, which are expected in March.
“I would ask all of you to bear with us,” BCA senior vice president of Global Supply Chain and Fabrication Ihssane Mounir said at an aerospace supplier conference on Wednesday. “Let us get through this process with the FAA, the audit process, and see what the findings are and how we mitigate those findings…and what it’s going to take to get back to the production rates as we forecasted them before.”
The current schedule has the 737 production lines going to 42 airplanes per month starting this month. However, in the wake of a door plug panel blowing out of a two-month-old 737 MAX 9 flown by Alaska Airlines, the FAA on Jan. 24, told Boeing it could not increase the production rate past 38 airplanes per month. The planemaker already had been struggling to deliver that many MAXes each month.
Mounir said quality and safety trump every other concern and that Boeing and its suppliers have to get back to basics when it comes to ensuring quality. For the time being, he told suppliers, “If you have an issue, please call, and we’ll work with you.”
Summary
- Mounir: Quality trumps everything else
- Boeing urges suppliers to voice concerns
NTSB confirms door plug bolts were missing on Boeing 737-9 MAX
By the Leeham News Team
Feb. 7, 2024, © Leeham News: The National Transportation Safety Board (NTSB) yesterday issued its preliminary report on the Alaska Airlines Flight 1282 structural failure on Jan. 5 this year. (A link to the report is below.)
The emergency exit door plug separated from the two-month-old Boeing 737-9 MAX due to faulty installation, the National Transportation Safety Board confirmed.
A door plug on an emergency exit on a two-month-old Boeing 737-9 MAX blew off the airplane as it passed more than 16,000 ft shortly after takeoff from Portland (OR). Nobody was killed and only a few injuries occurred. The flight crew made an emergency landing in Portland a few minutes later.
Within days, the focus for the incident landed on Spirit AeroSystems, which makes the fuselages and installed the door plug, and on Boeing, which completed final assembly at its Renton (WA) 737 plant. Quality assurance, or “quality escape” in aviation jargon, was suggested to be issues at Spirit and Boeing.
LNA’s Bjorn Fehrm quickly concluded that four bolts meant to hold the door plug in position after installation were missing. The bolts are designed to prevent the plug from moving upward off flanges that hold the plug in place in the fuselage opening.
The NTSB’s investigation confirmed that these four bolts were missing after Boeing removed and reinstalled the plug to fix a quality escape from Spirit affecting the plug. Boeing employees failed to reinstall the plug.
Removing the plug is not a standard final assembly procedure. It’s called an “unplanned removal.” There is a specified procedure to reinstall an unplanned removal. It appears that Boeing failed to follow its own procedures.
LNA on Jan. 15 detailed the procedures for unplanned removals and reinstallation.
Related articles
- Unplanned removal, installation procedures at Boeing
- 737 incidents prompt new scrutiny at Boeing
- Alaska 1282 isn’t a “MAX” story, it’s a quality assurance issue at Boeing and Spirit
Quality Will Drive Pay for Spirit Executives
By Dan Catchpole
Feb. 6, 2024 © Leeham News: Quality more than quantity will drive Spirit Aerosystems executives’ compensation when the company unveils its new formula when it files its proxy statement in March, the company’s CEO Pat Shanahan told Wall Street analysts on Tuesday. 
“It will be significantly different, and the heaviest weighting will be only quality,” he said during a conference call discussing Spirit’s fourth quarter earnings report.
The panel blowout on Alaska Airlines Flight 1282 last month highlighted ongoing quality problems at Spirit and Boeing. Unlike the violent decompression on the 737 MAX 9, the quality problems typically just create financial headaches and public embarrassment for the two companies.
Spirit recorded $59M in net income, 48 cents adjusted earnings per share, and $42M free cash flow in the fourth quarter of 2023, its first profitable quarter since the beginning of 2022.
The company’s performance was boosted by a contract renegotiation and financing deal signed with Boeing in October. Spirit is getting close to signing a similar deal with Airbus, Shanahan said.
Summary
- Quality metrics for exec compensation
- Short term, long term plans for improving quality
- Negotiations with Airbus
Aboulafia calls for “regime change now” at Boeing
By Scott Hamilton
Feb. 6, 2024, © Leeham News: With hundreds of new 737 MAXes facing delays due to the Federal Aviation Administration’s freeze on production rates, how much compensation will Boeing owe airlines and lessors?
It’s a question that’s unanswered at this time. And much depends on whether the delays are “excusable” or “inexcusable” in Boeing’s contracts.
Excusable delays are things outside of Boeing’s control, such as Acts of God, War, pandemics, etc. Inexcusable delays are things within Boeing’s control. However, there could be legal maneuvering as to just what this means. Is grounding by the Federal Aviation Administration—something outside Boeing’s control—an excusable or inexcusable delay if the grounding is caused by something within Boeing’s control?
Are problems within Boeing’s supply chain outside of its control but which delays deliveries by Boeing excusable or inexcusable delays? Contract language (which LNA has not seen) may address this.
Lawyers will argue over the contract’s meaning. But what is undisputed is that Boeing faces yet another mess with its long-troubled 737 MAX line.
Over the weekend, Reuters reported that once again supplier Spirit AeroSystems found mis-drilled holes in 737 fuselages. Boeing confirmed the Reuters report and issued a long statement from Stan Deal, the CEO of Boeing Commercial Airplanes, that 50 undelivered 737s may be affected. Deliveries will be delayed on these aircraft while inspections and repairs, if needed, are conducted. Deal’s message is at the end of this article.
At the Jan. 24-25 Aviation Week suppliers conference outside Los Angeles, consultant Richard Aboulafia called for “regime change” in Boeing’s leadership.
Pontifications: It’s been five years since Boeing’s last normal year. Five more to go.
Feb. 6, 2024, © Leeham News: Think about it.
The last normal year for The Boeing Co. was 2018—five long years ago.
By Scott Hamilton
At best, we think the next normal year may be 2028. Another five long years. And that’s if nothing else goes wrong within Boeing’s control. This is a big IF, given Boeing’s penchant for self-inflicted wounds in recent years.
It used to be that Boeing was considered the gold standard of aerospace engineering and production. This badge of honor went away with the 787, beginning in 2003—21 long years ago. The 787 was an engineering marvel. But it was an execution and production snafu of historic proportions.
The benign neglect by the executive C Suite at the group level and the Board of Directors of Boeing Commercial Airplanes is a corporate scandal of epic proportions. It so mimics what happened to the Douglas Aircraft Co. (DAC) by the benign neglect of its parent, the McDonnell Douglas Corp. (MDC) that it’s scary.
2018 was the last normal year The Boeing Co. has had. The 737 MAX was grounded in March 2019 and Boeing hasn’t recovered yet. Source: The Boeing Co.
The McDonnell Co. acquired DAC in 1967 in an arranged marriage by the government as DAC was on the brink of bankruptcy. In 1967, Boeing and DAC were the US duopoly that Boeing today shares with Airbus. The latter was formed in 1970 and delivered its first airplane in 1974.
By the time Boeing and MDC merged in 1997, DAC’s global share was down to 7%. Airbus and Boeing gained share as MDC starved DAC for development of new airliners.
Today, Boeing’s backlog share in the single-aisle sector is between 35% and 38%, depending on the measuring point and whether China’s COMAC, Russia’s United Aircraft Corp., and Embraer’s E195-E2 are included in the numbers. Some believe Boeing is headed for a 30% share. Some believe Boeing has designed its last all-new airliner.
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.