Boeing’s BCA: Margin Still Red, But Turning

Boeing is steadily making progress toward improving the operating margin for Boeing Commercial Airplanes (BCA). It now expects to become positive by mid-year in 2027. The improved margin reflects the strides made since digesting a few years with negative results for numerous reasons. BCA’s margin ended Q1 at minus 6.1 percent, up from minus 6.6 percent year-over-year. It is better than the -7.5 to -8.0 percent that CFO Jay Malave mentioned in March during a Bank of America conference. And it will get better. “ We still expect progressive improvement sequentially this year, and it will turn positive by mid next year as we increase deliveries and improve our cost base. Over the next 18 months, we have a solid path to positive margins on BCA”, Malave said on Wednesday during Boeing’s first quarter earnings call. BCA’s operating loss was slightly higher at $569 million versus minus $537 million in Q1 2025, although revenues were up by 13 percent to $9.2 billion. This reflects higher delivery volumes of 143 aircraft compared to 130 airliners in Q1 last year. Deliveries could have been higher without the wiring issue that was identified on 25 MAX aircraft during production. Boeing said in February that this would impact March deliveries, which ended at 34 aircraft. Rework on all affected aircraft has been completed, and some have already been delivered, CEO Kelly Ortberg said. Another item affecting BCA is the higher-than-expected integration cost of Spirit AeroSystems. Malave said in March at the BoF conference that costs per shipset were higher than Boeing was paying for, resulting in what he called “a reset of margins” and a “short-term headwind.” While he is satisfied with the quality and stability Spirit is offering, it will take a couple of years for productivity and cost levels to align with expectations. MAX rates Ortberg and Malave said on the call that MAX production remained stable at 42 aircraft per month during the quarter. Malave was happy to announce that rework has dropped by 20 percent year-over-year. Boeing is waiting for FAA approval for the next rate increase to 47 per month by mid-year. “I feel pretty good about that”, Ortberg said. As he mentioned in January, Boeing has built up adequate inventory for this next step, including fuselages and CFM engines. However, the next rate break to 52 per month is more challenging, as suppliers need to be aligned with the higher number. Boeing has been working on this for many months now. Rate 52 also requires activating the North Line in Everett, which will help ramp up MAX production as it becomes ready later this year. Meeting the safety and quality programs is not negotiable for Boeing. “We are in the process of bringing that online. Capital is in place, the facilities are ready to go, and we have started hiring people. We will be moving experienced folks from Renton to Everett. We also need authorization (production certification) from the FAA for that line.” Ortberg and Malave reiterated that they expect certification of the MAX 7 and 10 this year, with first deliveries anticipated in 2027. The MAX 10 has been busy testing the autothrottle, autopilot, and angle-of-attack systems. Progress is also made on the design of the new anti-icing system on the engine nacelle, as the original design was deemed inadequate. Some 35 MAX 7s and 10s have been built so far. [caption id="attachment_190216" align="aligncenter" width="729"] Boeing 777-9 Dubai Airshow 2023[/caption] Dreamliner Production of the 787 has stabilized at eight aircraft per month, with rework down by 25 percent since Q1 last year. “We have done a good job of stabilizing from 5 per month, to 7, and then to 8. We have been struggling with getting seat certifications completed for new cabin configurations. This has less impact on factory production. We can build them, but can’t deliver.” As a result, Boeing delivered only 15 aircraft during the quarter. This certification issue is related to premium/business-class seats/suites, as has been most evident with Lufthansa 787-9s that had been awaiting delivery for many months. “I don’t see any showstoppers in certification; it is just taking longer than anticipated. Getting the seat certifications behind us will unlock more”, Ortberg said. Malave added that Boeing is working closely with the FAA, suppliers, and customers to resolve this issue. Ortberg noted that engine deliveries have fallen slightly behind, “so we have a recovery plan.” Malave expects Dreamliner deliveries to get to 20 aircraft in Q2, still slightly below the production rate. Full-year 787 deliveries are guided at 90-100 aircraft. The production rate will go to 10 per month later this year, but only after a positive readiness assessment. Boeing raised the accounting quantity for the 787 by 100 aircraft to 2.000, which should cover $13.4 billion in deferred production costs and $2.3 billion from future orders. 777-9 With Type Inspection Authorization Phase 4A in progress, certification of the 777-9 is on track for certification and first delivery in 2027. Phase 4A is a small package that includes icing tests, but Boeing was keen to conduct them in Alaska this winter under natural icing conditions. “We will soon get to phase 4B, which is a pretty large package. It will be important for us to continue the flight testing”, Ortberg remarked. The CEO said that the program is not affected by the mid-seal problem that surfaced on the General Electric GE9X engine in January. GE Aerospace said on Tuesday during its March quarter earnings call that it has identified the root cause of a cracked seal and is working on a redesign. Production rate for the 777-9 will be 5 per month, which, according to Ortberg, “is reasonable with overall market demand and our capacity.” Boeing has roughly 30 777-9s in inventory (value: $5.3 billion) that require rework to bring their specifications up to date. “We will go back to make all the necessary changes before we make the delivery. It is a pretty massive activity. We have a dedicated team at BCA. The older, the more structural changes need to be incorporated.” Boeing has some pretty big unfilled orders from the Gulf carriers. Asked if the Middle East crisis has resulted in any cancellations or deferrals, he answered no. “No customers have been requesting redeliveries. Keep in mind that 14 percent of our unit backlog is in the Middle East, with two-thirds of the deliveries scheduled for 2030 and beyond. I think we will be ok. But if someone has issues, we can re-sequence that aircraft.”

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