UPDATE – Despite improving its margins, Boeing Commercial Airplanes continues to be loss-making in HY1 and Q2. Revenues were higher thanks to more MAX deliveries, but the continued delivery pause of the 787 continues to affect income and cash flow. Boeing released its Q2 and HY1 results on July 27. Boeing reduces Commercial Airplanes losses thanks to MAX.
Boeing Company reported a $-1.082 billion net loss for HY1 compared to a tiny $6 million profit in the same period last year. The operating loss was $-395 million versus $940 million in 2021, with costs and expenses almost identical at $28.2 versus $28.4 billion. Group revenues were down to $30.7 billion from $32.2 billion.
In the second quarter, the Group produced a $160 million profit but down from $567 million in 2021. The operating profit was $774 million from $1.023 billion, with costs and expenses on par at $14.6 billion. Revenues were $16.681 billion versus $16.998, so again very close. Boeing Group reported a $-1.242 billion net loss in Q1.
MAX rates to stay at 31 per month until engine makers fix supply issues
Looking at Commercial Airplanes, it ended HY1 at a $-1.101 billion loss compared to $-1.328 billion, with revenues at $10.380 billion versus $10.284 billion. This reflects the higher deliveries of the MAX of 216 for the six-month period compared to 156 in HY 2021. In Q2, BCA reduced its losses to $-242 million from $-472 million. It delivered 121 aircraft versus 79 last year. The HY1 operating margin was -10.6 percent by the end of June, although it improved in Q2 to -3.9 percent.
737/MAX deliveries totaled 189 in HY1 and 103 in Q2. Despite supply chain issues that disrupted production in Q1, Boeing succeeded in ramping up the production rate to 31 per month as planned. The rate will stay here until Boeing is comfortable that it has stable numbers from month to month before it will go higher. “Stability is the watchword for us”, said Boeing President and CEO David Calhoun. The key issue that is holding up Boeing (and Airbus…) is supply chain issues with raw materials, conductors, and notably with engine makers, who struggle with the casting of engine parts. “Our earlier decision not to go to rate 38 on the MAX is based on that. We will watch as they qualify for more capacity before pulling rates up. Engine makers will have to make some investments to keep up with the robust demand in the market. (…) Will it be better next year? Yes, but I don’t want to get ahead of myself.”
At the end of Q2, there were 290 MAX in inventory, of which roughly half for Chinese customers. Boeing has now de-risked China from its deliveries, as it doesn’t count on a quick solution due to geopolitical, Covid, and regulatory issues which have held up deliveries to Chinese customers. “We enjoy a pretty robust demand market. China is separate from the ability to meet demand in the marketplace, it isn’t a pacing item,” said Chief Financial Officer Brian West, who referred to the strong success at last week’s Farnborough Airshow. De-risking China shouldn’t have an impact on Boeing’s target to be cash flow positive this year, Calhoun added, who called on the US government to discuss the reopening of the aviation market with China. On when deliveries to China could happen, West said: “Given the uncertainties around China, we expect to shift most deliveries to 2024.”
With rates not higher than 31 per month, 290 aircraft still in inventory, and China out of the sequence, Boeing now expects total deliveries to be in the low 400s for this year. By comparison: 2021 deliveries were 340.
787 on the verge of resuming deliveries
On the 787, Boeing said it is “on the verge” of starting deliveries of the type. Boeing continues to work closely with the FAA to finalize actions that will lead to the resumption of deliveries, which have been paused since May 2021 over production quality issues. Boeing executives, Calhoun and BCA President, and CEO Stan Deal, have said in recent weeks that they expect FAA approval anytime soon. “Our 787 team is in the final stages of preparing to restart deliveries”, Calhoun writes in a letter to staff. American Airlines indicated last week that it expects deliveries of 787-8s in August.
West confirmed that there are 120 Dreamliners in inventory, many of them having already been reworked. Once deliveries resume, 787 production will remain at a very low rate until all issues have been solved before increasing to five per month. West acknowledged that Boeing will have to compensate some customers for the delays, so there will be some variabilities in cash payments once deliveries are resumed. But the program still has cash-positive margins and will improve over time, said West.
Boeing took another $283 million in abnormal costs on the Dreamliner program but continues to guide total abnormal costs to be no higher than $2.0 billion. Over Q2, deferred production costs on the 787 program increased to $12.056 billion compared to $11.753 billion in Q1 but still well below that $15.153 billion in Q3 2021.
In HY1, Boeing delivered twelve 777-300ERs and -777Fs compared to fourteen last year, of which nine in Q2 (eight). There was no news on the certification schedule of the 777-9, with the first deliveries still scheduled for early 2025. Boeing took $120 million in abnormal costs to the program, but this is in line with the $1.5 billion in abnormal costs that it announced in April for the Q2 2022 to late 2023 period. The airframer also delivered twelve 767s, including freighters and tankers (HY 2021: thirteen), of which seven in Q2 (eight). 747 Deliveries in HY1 stood at three versus two, of which two in Q2.
Boeing Global Services benefitted from business and contracts from the US Air Force and Navy as well as from freighter conversion and maintenance programs. HY1 produced a $1.360 billion profit (2021: $972 million) on revenues of $8.6 billion ($7.8 billion). In Q2, BGS produced a $728 million profit versus $531 million last year, with revenues up to $4.3 billion from $4.1 billion.
Charges on various programs at Defense, Space & Security pushed the business unit into the red at $-858 million compared to $1.363 billion in HY1, although Q2 produced a tiny $71 million profit versus $958 million last year. HY1 revenues ended at $11.7 billion versus $14.1 billion.
Analysts have been particularly keen to see how Boeing’s free cash flow would develop as 787 deliveries were absent. The operating cash flow in HY1 was $-3.135 billion (2021: $-3.870 billion), with total free cash flow at $-3.747 ($-4.383 billion). However, Boeing’s operating cash flow was positive in Q2 at just $81 million ($-483 million), thanks to higher deliveries and more pre-delivery payments. Total free cash flow was still at $-182 million, an improvement over $-705 million in Q2 last year. Boeing is committed to becoming cash flow positive this year.
Boeing’s net debt also remains high at $57.2 billion, just $0.5 billion lower compared to the end of March. Its total cash position includes $11.4 billion, down from $12.3 billion. The company still has $14.7 billion available in undrawn credit facilities.
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.
In 2022, he has gone full-time freelance. Richard has been contributing to AirInsight since December 2018. He is also writing for Airliner World and Aviation News and until July 1 2023 in a part-time role with Dutch website and magazine Luchtvaartnieuws. Twitter: @rschuur_aero.