UPDATE – In between the tiniest of tiny profits of $6 million for Boeing Group, the Commercial Airplanes division continues to produce red results. Boeing Commercial Airplanes reported a $1.328 billion HY1-loss and a Q2-loss of $472 million as production and delivery issues continue to impact the division, the OEM announced on July 28. Boeing Commercial continues to see red.

Revenues for the second quarter improved to $6.015 billion compared to $1.633 billion as BCA delivered 79 aircraft, of which 50 737/MAX and twelve 787s. During the January-June period, revenues improved to $10.284 billion from $7.838 billion, thanks to 113 737/MAX deliveries or 156 in total.
Higher deliveries helped to reduce losses. From $2.762 billion to $472 million in Q2, from $4.830 billion to $1.328 billion in HY1. Operating margins improved to -7.8 percent in the second quarter, up from -169.1 percent, or to -12.9 percent in HY1, up from 61.6 percent.

Look at the Group level, Boeing produced a $6 million HY1-profit compared to a $3.036 billion loss in the same period last year. Revenues were up 12 percent to $32.215 billion or even by 44 percent in Q2, ending at $16.998 billion.
The Group produced a $567 million Q2 profit, an improvement from a $2.395 billion net loss in 2020.
Defense, Space & Security performed the best and booked a $1.363 billion HY1-profit, up 233 percent. Global Services reported an HY1 profit of $972 million, up from $36 million last year. Global Services benefitted from increased interest in the Boeing Converted Freighter program for the 737-800.

MAX production rate now at 16 per month

Boeing’s pain remains with its major commercial aircraft programs. After the brief delivery pause until May due to the electrical issues in the cockpit area, the MAX is steadily coming back. The MAX 10 with its levered gear (main picture) did its on June 18. The airframer currently produces 16 MAX per month and is on track to reach its 2022 production target of 31 per month, with further rate ramp-ups dependent on the market situation.

Since the ungrounding of the MAX in December, 130 newly built aircraft have been delivered and 190 redelivered after grounding. Airlines have now booked MAX orders for five consecutive months for over 280 aircraft, which isn’t just an opportunistic move by airlines, said CEO David Calhoun. Recent bumper orders from United and Southwest have been strategic decisions and he expects the backlog to grow during the second half-year. There are approximately 390 MAX built and stored in inventory and Boeing has been successful in remarketing whitetails, interim CFO Dave Dohnalek said. Half of these are expected to be delivered this year and the remainder in 2022, bringing monthly delivery rates to well over 50.

Deliveries of the 787 remain suspended over production quality issues that first seemed to be limited to the aft section of the composite fuselage but have been identified elsewhere in the fuselage. The latest problem has been found in the nose area around the forward pressure bulkhead as part of the inspection program that Boeing started on Tier 1 and 2 supplier levels. “The company is conducting inspections and rework and continues to engage in detailed discussions with the FAA on verification methodology for 787. In connection with these efforts, the company announced earlier this month that it has identified additional rework that will be required on undelivered 787s. Based on our assessment of the time required to complete this work, Boeing is reprioritizing production resources for a few weeks to support the inspection and rework”, Boeing says in the press release.

No better moment to get the 787 issues fixed than now

Calhoun fully understands that the issues have prevented the investor community from reading the exact performance of Boeing and he apologized for that during the webcast, but he is convinced that most of them have been resolved. “In every case, we look for even the smallest exception to the tolerances that we have designed. When we identify it, we immediately talk to the FAA about it. Then we fix it and then we make sure it won’t happen again. If we ever had a window to get this behind once and for all, it is now. We are producing at the lowest rate ever, customers are not knocking on our door for these airplanes. What we are taken on is a readiness for what I believe will think is a recovery of the wide-body world next year. When that comes, we have to be ready for rate increases in a very stable form. The actions we are taking now are the most important part of that puzzle.”  It’s up to the FAA to decide if any extensive rework on 787s already in active service is needed, but Calhoun hopes it can be included in the regular maintenance schedule. 

The production rate for the Dreamliner has been temporarily reduced below five per month and will gradually return to that rate once the issues have been fully solved. As reported earlier this month, Boeing expects to deliver fewer than half of the 787s currently in inventory this year, which should be around 40-44 deliveries.
Contrary to analysts’ expectations, Boeing didn’t take a reach-forward loss on the 787 in Q2 but all costs related to the latest problems and reduced rates have been included in the quarterly results, said Dohnalek. The Dreamliner still has near-to-break-even margins. Although the additional costs will create a headwind in the near term, unit margins will hold up relatively well.
During Q2, deferred production costs for the 787 have increased again to $14.927 billion and are now almost back at Q4 2020 levels. 

Boeing maintains its plan to deliver the first 777-9 by the end of 2023. The too is under scrutiny as regulators wait for Boeing to present them with evidence that a number of software and hardware issues have been resolved satisfactorily. “We continue to communicate transparently with the FAA and other regulators. We continued to make progress on the schedule. The airplane is performing as expected”, said Calhoun. During the webcast, he said he hoped to launch a freighter version in the not too far distance which Boeing will need to comply will the latest regulations on emissions that will make the 767-300ERF and 777F outdated.

Cash flow has improved significantly

While Boeing Commercial continues to see red, thanks to the improving commercial environment and lower expenditures the Group’s operating cash flow has improved: from $-5.3 billion in Q2 last year to $-483 million this year, or from $-9.6 billion to $-3.9 billion in HY1. Boeing still expects to become cash-flow positive in 2022.
The company ended June with $21.3 billion in cash and marketable securities, $0.6 billion down on that of late March. The total consolidated debt remained flat at $63.6 billion, but Dohnalek said Boeing will remain focused on reducing debt.

Boeing planned to reduce its workforce to 130.000 by late 2021 but had decided to retain it at the current level of 140.000 as it is seeing encouraging recovery trends. “As we have done throughout the pandemic, we will also continue hiring in some parts of our business to fill critical skill positions and meet customer commitments”, said in a statement to staff. At the same time, Boeing will continue its business transformation strategy that will lead to sustainable cost reductions and production stability, including much-needed delivery predictability. 

 

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