UPDATE – Boeing expects that rework on the 787 and lower production rates to result in $1.0 billion in abnormal costs. Of this, $183 million has been recorded in the third quarter results, the airframer said on October 27 during the Q3 results presentation. 787 rework and lower rates will cost Boeing one billion.
Until October, Boeing has delivered just fourteen Dreamliners this year, following quality issues with the carbon fiber composite fuselage sections and incorrect shimming. Production of the 787 at the North Charleston site would be reduced to ‘less than four per month’, Boeing said at the Q2 results presentation. Today, it specifies that this is “approximately two per month.”
The airframer expects to continue this rate until deliveries resume and then return to five per month, which was the rate originally planned from mid-2020. It continues inspections and rework on the fuselage as well as on titanium parts of inferior quality that were produced until earlier this year by Italian sub-supplier MPS. The issue needs time to be sorted out: “That’s the long pole in the tent”, said CEO David Calhoun.
Boeing is engaging with the FAA on actions that are required for resuming 787 deliveries, of which there are 105 in inventory. Calhoun said Boeing has a clear line of sight to end these troubles but didn’t offer specific dates and details: “It’s gonna be when it is gonna be. We will get through this but we are not through it.” Getting the issues sorted out is ninety percent Boeing’s. However, the Dreamliner program margin remains close to break-even, said CFO Brian West.
777 deliveries will be in line with 2020 when it delivered 26 aircraft. The 777X is on track for certification by late 2023. It started engine performance testing of the GE9X earlier this month leading towards the start of the certification phase. “We put a lot of time into it we would never have done before the MAX”, said Calhoun, who is confident Boeing will now meet the schedule toward 2023.
He said Boeing is currently evaluating the timing of launching a freighter version of the 777X. “We will update you later on this.” It is widely anticipated that Boeing will launch the 777-8F at the forthcoming Dubai Airshow in November. During Q3, Boeing recorded 24 orders for 777Fs and 767-300ERF full freighters, more than it had anticipated for this year.
Net loss Q3 $132 million
Boeing Group announced a $132 million net loss for Q3 compared to a $466 million loss last year. Earnings from operations were $329 million compared to $-401 million in Q3 2020. Total revenues were $15.278 billion versus $14.1339 billion.
For the first nine months, the net loss was $126 million compared to $3.502 billion between January and September 2020. Earnings from operations were $1.269 billion versus $-4.718 billion. Total group revenues for the nine months period were $47.493 billion compared to $42.854 billion.
The operating cash flow was a negative $262 million in Q3 or $-4.132 billion for the nine months period.
Boeing Commercial Airplanes recorded a $693 million net loss for Q3 ($-1.369 billion in 2020) on revenues of $4.459 billion ($3.596 billion). For January-September, the net loss was $2.021 billion ($-6.199 billion) on revenues of $14.743 billion ($11.434 billion).
Revenues increased primarily because of higher 737 deliveries of 66 (62 MAX) in Q3 this year versus three last year, or 179 between January-September (12 last year). Since the MAX was re-certified in November 2020, the airframer has delivered 195 new aircraft and returned more than 200 aircraft out of inventory of grounded aircraft, with another 370 still remaining in inventory. Roughly one-third is for Chinese customers. Re-delivery of all the MAX in inventory is now expected by early 2023, but Calhoun admitted that Boeing has to do better at its completion center on this.
MAX currently at rate 19 per month
The production rate currently stands at nineteen per month and is progressing towards the previously announced 31 per month in early 2022, with higher rates not ruled out as it balanced the needs from the inventory. This will depend on the assessment of the supply chain, which Calhoun expects to have difficulty with coping with the higher numbers from mid-2022. Another factor determining the production rate is the approval of the MAX in China, which is expected before the end of the year with deliveries in early 2022. By then, it will also deliver the first MAX 7. In Q3, the MAX recorded seventy orders.
Boeing reduced its customer compensation/settlement for the MAX from $5.9 to $3.4 billion as “the lion share is in the rear-view mirror”, said Calhoun. The pricing of the MAX is back to normal levels, no longer affected by the discounts and compensation from the previous crisis.
Global Services saw Q3 revenues improve by fourteen percent to $4.221 billion, or by two percent during the nine-month period to $12.037 billion, primarily driven by higher commercial volumes as more aircraft needed services. Earnings from operations were $644 million in Q3 ($271 million last year) or $1.616 billion in January-September ($307 million). Global Services captured two imported orders, including that for twelve additional 737-800BCFs from lessor BBAM.
Boeing Group ended the quarter with $9.8 billion in cash. Including marketable securities, it had $20 billion available, down from $21.3 billion by the end of June. Total consolidated debt stood at $62.4 billion, down from $63.6 billion. It remains committed to reducing debt levels and restructuring the balance sheet, so it will return cash flow positive again in 2022 thanks to higher MAX and 787 deliveries.