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April 20, 2024
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UPDATE – Boeing has confirmed that the first delivery of the 777-9 has slipped to 2025, without being more specific about the exact quarter. The airframer has revised the schedule of the 777X program, “which reflects an updated assessment of the time required to meet certification requirements”, it said in its Q1 2022 earnings release on April 27. Boeing pauses 777X production and delays first delivery until 2025.

The new delay in the program was first reported last week by The Air Current and Reuters, which based their stories on undisclosed sources with airlines. A major reason for the delay isn’t just the certification requirements of the 777X itself, but also that of two other commercial aircraft programs that are under huge time pressure: the 787 and MAX 10 (more on those later).

In the original schedule, the first delivery of the 777-9 was planned for 2019. In January 2021, CEO David Calhoun announced the most recent delay until today’s announcement, with certification scheduled for late 2023 and deliveries starting late 2023/early 2024. Another year is now added to this schedule. The decision reflects the tougher approach the FAA and regulators have taken on Boeing after the MAX issues. Calhoun said: “Part of our 777X move out into 2025 is to incorporate all the learnings we have from other programs, the original MAX, the 787, the MAX 7, and now the -10. It is definitely a more rigorous process that we are all going through. Every i has to be dotted, every t to be crossed. With every certification, we know it’s going to take a little longer and a little more thorough than it has ever been.” The 777-9 has done now over 2.000 flight hours on the test schedule until the end of Q1.

As a consequence of the new delay, Boeing is pausing production of the 777-9 from now through 2023. “This move will minimize inventory, reduce the number of airplanes requiring change and corporation, and avoid capitalizing costs on the balance sheet”, said Chief Financial Officer Brian West. This will result in $1.5 billion in abnormal costs beginning in Q2 this year until production resumes. Boeing already took a $6.5 billion pre-tax charge on the 777X in its 2020 results. At the end of Q1, deferred production costs stood at $1.091 billion, and unamortized tooling costs at $3.572 billion. Six 777-9s for Emirates, five for Lufthansa, three for ANA, and one for Qatar Airways have already been assembled or are in the process of being assembled, with various aircraft currently in storage.

With the production of the 777-9 paused, Boeing is using the capacity to add slots for the current 777F in the 2024-2026 timeframe. After resuming 777-9 production, the rate could be increased from the combined 777/777X three per month that was planned for the second half of this year to a higher rate. Boeing says it is “leveraging an adjustment” to add capacity for the 777 Freighter from late 2023. The 777F won 42 orders in 2021 and is already nineteen so far this year. This excludes orders for the new 777-8F from Qatar Airways and (yet to be confirmed) Ethiopian Airways for the type that was launched in January. The 777-8F is scheduled to enter service in 2027.

Thanks to the new freighter order and future sales prospects, Boeing has adjusted the program accounting quantity for the 777X back up again to 400, having reduced the quantity from 400 to 350 in February 2021. At the same time, there are more uncertainties over some of the orders on the backlog, so Boeing has added more 777X (and MAX…) to the so-called ASC 606 Adjustments segment with orders that are uncertain, it says in its 10-Q filing. The program continues to have almost breakeven margins, but the level of profitability depends on a number of factors that could result in another reach-forward loss. 

The restart of 787 deliveries is in the hands of the FAA. This is a Gulf Air 787-9. (Richard Schuurman)

Certification plan 787 submitted to the FAA

On the 787, Boeing submitted the certification plan to the FAA last week and is now awaiting approval so deliveries can restart. “Rework has been completed on the initial airplanes and the company continues to work closely with the FAA on the timing of resuming deliveries.” Calhoun adds: “We also completed the required work on initial airplanes and are conducting Boeing check flights.” Dreamliner deliveries have been paused since May last year as the FAA wanted confirmation that production quality issues with composite components and sections are fully understood and in the past.

Calhoun is confident that Boeing has done its homework: “We fixed a lot of operations across our facilities, exacting specifications and that is all embedded in the paperwork presented to the FAA.” But he didn’t want to confirm media reports that 787 deliveries will resume from July: “I’ll get into trouble if I predict any outcome with respect to FAA certification, but I can say the quality of the package we sent to the FAA is ok. Their fingerprints are all over it as we were getting guidance every step of the way. It’s been a long, hard run but I feel very good about where we are.” 

Production of the 787 remains at “a very low rate” or two per month and will continue to do so until deliveries are resumed, but will then gradually recover to five per month. Currently, there are 115 Dreamliners in inventory, which includes five new airframes that have been produced according to the latest standards. Although rework is in progress, it will take well into 2023 to deliver all these aircraft. In line with what Boeing said in January, abnormal costs for the Dreamliner program are anticipated to be around $2.0 billion, with most of them incurred in late 2023. It recorded $312 million in Q1, which add to the $285 million in Q4 last year. However, no additional charges were take on the program in contrast to the $3.5 billion non-cash pre-tax charge in 2021 and cash margin remain strong. Deferred production costs for the 787 program since the start now stand at $11.753 billion, up from $11.693 in Q4 last year, plus some $3.7 billion in other costs. Of this, $8.901 billion is expected to be recovered from the current backlog and $4.670 billion from expected future sales.

No further production rate increase for the MAX beyond 31

In sharp contrast to recent years, the MAX is now the cash cow for Boeing and has brought in most of the $4.2 billion revenues for Boeing Commercial Airplanes this Q1. The program is now maturing well and offers great realiability. Boeing didn’t announce further production rates increases today and instead repeated that the rate “is expected to increase to 31 airplanes per month during the second quarter.” This is in line with what it said in January when rate 31/month was announced for “early 2022”, up from 26 per month. 

Boeing indicated earlier that it was exploring options to increase the MAX rate to 42 per month, but this was dependent on the recertification of the type in China. This still hasn’t happened, although the Chinese CAAC indicated in December that approval was imminent. The MAX has done some limited test flying in China since the start of the year, while one specific aircraft was flown from Renton to China for further completion. Without the recertification, sales in China are unlikely and this has an effect on production rates. With the war in Ukraine and sanctions on Russia continuing, the MAX is unlikely to be recertified in Russia either. 

Calhoun said Boeing has no indications that China has doubts about the certification of the MAX. It’s more the tough Covid-situation that is delaying the schedule, with many airlines drastically down on operations. He is optimistic that the CAAC will officially recertify the MAX anytime soon: “If it is measured in a couple of months, I still feel very good about where we are in respect to deliveries. We de-risked this year’s deliveries significantly and we can de-risk more, but I don’t want to de-risk as I still have faith that China can take the airplane.”

With 320 MAX still in inventory that need to be delivered until the end of 2023, Boeing is happy with rate 31. “Our biggest job is to stabilize around that rate. Our teams are working very hard but have to deal with supply chain constraints that pop up now and then. Anything else (on rates) is a future decision that we aren’t prepared to take because we want to look at what is right in front of us”, said Chief Financial Officer Brian West. At the end of March, deferred production costs for the MAX program stood at $1.753 billion and abnormal costs at $188 million. Boeing expects $2.343 billion in deferred production costs, unamortized tooling, and non-recurring costs to be recovered from sales.  

Certifcation of the MAX 7 and 10

Boeing is also still needing to complete the certification of the MAX 7, although the type has done most of its flight test campaign. Further delays have an impact on scheduled deliveries to Southwest Airlines, which is a prime customer for the type and is counting on 72 MAX 7s this year out of 250 on order. If the MAX 7 is delayed, Southwest might bring forward deliveries of the 149 MAX 8s it also has on firm order.

As mentioned, the MAX 10 is also a problem. The largest MAX model has been in its test campaign since June 2021 but there are serious doubts that certification will be granted before the end of this year. If it fails to do so and certification slips to 2023, the MAX 10 risks the requirement for an extensive cockpit update with the Engine Indicating and Crew Alerting System (EICAS) that is mandatory under new US legislation that becomes effective from January 1, 2023. When Boeing says in its earnings release that the 777X delay “reflects an updated assessment of the time required to meet certification requirements”, this could be interpreted as applying to the MAX 10 as well.

All the energy and focus is now on certification of the MAX 7 and -10 “and ensure that we respect the first deliveries this year and next”, said West. Calhoun is confident that a solution for the new legislation/EICAS issue will be found for the -10: “With respect to the original legislation, there was a lengthy window put in there based on historic certifcation timetables that would have provided for the -7 and -10 easily. But it has taken more time. The intent of the legislation was never to stop the derivative product line of the MAX. So I believe that are chances are good in respect to getting legislative relief. If we don’t, it’s a problem. On the otherhand, demand for the MAX is substantial and we have other airplanes in subtitution that we can implement. That decision has to be made between now and the end of the year. We don’t have to do it now, we are pretty focused on getting the MAX 10 certified and in our customers hands. We need to make sure our decisoning and thought process is ahead of where we think things end up by the end of the year.”

A slide of Boeing Commercial Airplanes Q1 situation (Boeing)

Loss deepens due to defense charges 

Boeing Group reported a $1.242 billion net loss for Q1 compared to $-561 million in the same period last year. The loss from operations was $1.169 billion versus $-83 million. The operating margin is down to -8.4 percent compared to 0.5 percent in 2021. Group revenues were also lower to $13.991 billion from $15.227 billion. The operating cash flow was marginally better at $-3.216 billion from $-3.387 billion, with free cash flow to $-3.565 billion from $-3.678 billion. Boeing blames the results on lower defense volume and charges on fixed-price defense contracts, partly offset by commercial services volumes.

Looking at Boeing Commercial Airplanes, the loss from operations was almost on par: $-859 million versus $-856 million. The operating margin was -20.6 percent versus -20.1 percent. Revenues were down to $4.161 billion from $4.269 billion. BCA delivered 95 aircraft (81 MAX) in Q1 compared to 77 last year and received gross orders for 167.

Boeing Commercial Services improved its profit to $632 million from $441 million, with revenues increasing to $4.314 from $3.749 billion, thanks to higher volumes. Its operating margin ended at 14.6 percent, up from 11.8 percent. Defense, Space, and Security reported a significant change of fortunes, with a Q1 loss of $-929 million from a $405 million profit last year. Revenues dropped to $5.483 billion from $7.185 billion. The result includes a $660 million charge on the two VC-25B/747-8I Air Force One aircraft, $367 million on the T-7A Red Hawk programs, and another $165 million on the KC-46A Tanker program.

The Group ended the first quarter with $12.3 billion in cash and marketable securities, down from $16.2 billion by the end of Q4. It has $14.7 billion in untapped revolving credit facilities. West said that Boeing sees no urgency for a capital increase. Total debt decreased to $57.7 billion from $58.1 billion. The total backlog for the company is $371 billion, of which $291 billion for BCA with nearly 4.200 commercial aircraft.

“Despite the pressures on our defense and commercial development programs, we remain on track to generate positive cash flow for 2022”, Calhoun says in the earnings statement. “We are a long-cycle business, and the success of our efforts will be measured over years and decades; not quarters. The deliberate actions we’re taking now will drive stability in our operations and position us for long-term, sustainable performance.”

Getting 500 deliveries this year not certain

Asked if 500 deliveries projected for this year is still realistic given the uncertainties around China and the MAX 10, Brian West said: “We did de-risk China, as David mentioned. First-quarter deliveries were a little light and we probably won’t get all the way there in the calendar year, but that’s just timing. But we have plenty of finished inventory, and we have got the rate where we want it. We may not quite get there, but the momentum is getting better and if we don’t get there this year then it’s just timing for the next. It is all factored in our cash flow, which we still believe will be positive in the year.”

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Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.

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